ASC merger plans scrapped

American Skiing, MeriStar won't join as Doral


— The planned merger between Steamboat Ski Area parent company American Skiing and hotel manager MeriStar fell apart late Thursday. The news came on the eve of a shareholders meeting in Newry, Maine, that would have approved the marriage, if not consummated it.

Even if the shareholders meeting had not been canceled, the wedding party might have struggled to attend the area was socked with 30 inches of snow on Friday that knocked out power in American Skiing Co.'s offices.

Both companies issued statements saying their boards had mutually agreed to call off the merger after they were unable to raise the capital needed to close the deal. They attributed recent downturns in the nation's economy and the stock market to their inability to get the necessary financing.

The merger was announced Dec. 11, and would have resulted in American Skiing's headquarters moving from Maine to Washington, D.C.

American Skiing Chairman Les Otten would have remained in that role with several key MeriStar executives taking leadership roles in the new company. It would have been known as Doral International. Otten touted the merger as a way to create new platforms for growth that would have allowed Doral to realize new synergies from the institutional knowledge of the two combined companies. Doral also was being counted on to bring its expertise in hotel management and new efficiencies to American Skiing's Grand Summit hotel properties at several of its ski areas, including Steamboat.

Otten, in a prepared statement, blamed prevailing economic conditions for the decision to back away from the merger.

"With the recent changes in economic conditions and their resulting impact on the financing necessary to operate the combined company, each company has reached the conclusion that pursuing operations on a standalone basis was more attractive to its shareholders than consummation of the merger," he said.

MeriStar's Paul Whetsall said his company will be content to concentrate on its existing business.

"Given the slowdown in the economy, we believe it is more prudent for us to continue to focus on our core business of operating hotels."

Senior lenders, shareholders and bondholders expressed concerns about going forward with the merger, according to American Skiing spokesman Skip King.

"When two companies come together, their shareholders need to agree," King said. Recent declines in the price of both company's stocks, although small on a percentage basis, didn't reflect confidence in the merger, King said.

American Skiing's shares were actually up anywhere from 40 to 55 percent Friday afternoon in the wake of the merger being called off, and traded as high as $1.71. MeriStar was down 0.14 to 1.66 as of late Friday morning.

In addition to crumbling shareholder confidence, senior creditors and bondholders were expressing doubt about the merger.

The company issued bonds when Otten, previously the owner of a privately held company, acquired resorts owned by Ski Limited, including Killington, Vt., Mount Snow and Sugarloaf.

All of those factors, combined with the fact that current national economic conditions made it difficult to acquire financing needed to bring the two companies together, meant the merger was no longer favorable to shareholders of both companies, King said.

King said it was not Oak Hill Capital Partners, which would have owned 51 percent of the common shares of the new company, that called off the merger. Instead, he said the boards of both companies decided it no longer made sense to merge.

The end of the merger talks also means Otten won't realize his goal of leveling his company's cynical cash flow by acquiring MeriStar and the contracts it has to manage resort hotels throughout the country.

A proforma issued by American Skiing to inform its investors of the company's condition and the terms of the merger, spells out how much of a challenge cash flow is for the company.

The proforma confirms that over the last five fiscal years, American Skiing has taken in an average of about 88 percent of its resort revenues and 100 percent of its resort cash flow from November through April.

"In addition, American Skiing's resorts typically have experienced operating losses and negative cash flow for the period from May to October," the proforma reveals.

However, American Skiing's own proforma cautioned that restrictions imposed by Doral's debt agreement could have significantly limited its ability to execute its business strategy and continue to grow.

King said it's true that method of improving the company's cash flow is no longer available, but he said it remains a long term goal.

"Just because the instant access (to a remedy) isn't there any longer doesn't mean it's going to change our goal," King said. "The merger would have accelerated that process, but turning our resorts into four-season destination is still very much our plan."

King said the company's executives continue to believe they are on track to meet their obligations on both long-term and short-term debt in the wake of the merger falling apart.

Otten said during a first-quarter conference call that not only did he expect his company to reach its goal of paying down its debt by $40 million this year, but to do even better.

"We're looking at going beyond that," Otten said.

Asked if the circumstances of this week had changed the outlook on reducing debt, King said American Skiing has formally decided it will not change the "guidance" it gave to investors and analysts for major brokerage houses during a first-quarter earnings report earlier this month.


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