Vail Resorts goes to heavenly
March 27, 2002
Vail Resorts has signed a contract to buy the Heavenly Ski Resort in Lake Tahoe for between $96 million and $99 million, depending on when the deal closes.
If the deal with the American Skiing Co. goes through, Vail Resorts would add Heavenly, and its 850,000 annual skier visits, to its collection of Colorado ski areas Beaver Creek, Vail, Breckenridge and Keystone.
On Tuesday, the struggling American Skiing Co. stopped short of selling the Steamboat ski area to a group led by the owners of the Okemo ski area in Vermont for $90 million. That deal was set to close on Tuesday but was canceled at the last minute.
American Skiing bought both Heavenly and Steamboat in 1997 for $288 million.
Vail Resorts Chairman and CEO Adam Aron said the purchase of Heavenly made economic sense for the public ski company, given its attractive price, the room for growth in the ski area’s retail and restaurant operations, and the ability to attract more California skiers to Heavenly.
“We look for resorts that we can buy inexpensively,” Aron said. “We got a fabulous resort at a very attractive price.”
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The official price Vail is paying for Heavenly is $102 million, but American Skiing Co. is offering a discount for quick cash.
The price drops the sooner Vail Resorts closes the deal. If it closes in 30 days, the price is $96 million. If it closes in 90 days, it’s $99 million. Of the purchase price, $3 million is made up of existing Heavenly debt, so Vail Resorts could pay as little as $93 million in cash with a quick close.
The Heavenly Ski Resort has 4,800 acres of ski terrain, sweeping views of Lake Tahoe, and a new $25 million gondola connecting the resort to a new base village in South Lake Tahoe.
It is one of the 10 busiest ski areas in the United States, is the biggest and highest ski area in the Tahoe area, and was ranked the 15th best resort in Ski magazine’s 2002 annual reader survey.
The ski area is three hours from San Francisco, two hours from Sacramento and an hour from Reno, Nev. One-third of its skiers are day skiers, a third are regional overnight visitors, and a third are destination skiers from Texas, Great Britain and other markets.
What Heavenly lacks, said Vail Resorts President Andy Daly, is an updated lift system and good on-mountain and base-area restaurants and lodges.
So Vail Resorts plans to spend $25 million in the next three to five years on new facilities at Heavenly and $15 million over five years to maintain the resort’s infrastructure.
About 80 percent of Heavenly’s revenue comes from lift ticket and ski school sales. Retail and food and beverage sales account for the remaining 20 percent. Vail Resorts is a leader in the ski industry when it comes to growing revenues in areas other than lift tickets.
“We think we can grow food and beverage nicely,” said Daly. And, he said, Heavenly’s retail stores would mesh well with Vail’s current group of retail outlets, which includes Aspen Sports.
Pat O’Donnell, CEO of the Aspen Skiing Co., said Tuesday’s announcement by Vail Resorts did not surprise him, as there has been plenty of industry speculation that Vail was about to buy Heavenly.
And he doesn’t think that the renewed competition would hurt Aspen/Snowmass.
“I don’t think there is any particular downside for us,” O’Donnell said. “Acquisitions by Vail or Intrawest do not affect our market share. The customers are pretty much apples and oranges. Aspen is Aspen. It has a loyal market.”
He did think, however, that the deal made sense for Vail Resorts.
“Heavenly is a great ski area,” said O’Donnell. “It has a good reputation, and it gives them a good database to exchange between Colorado and California.”
The Heavenly deal does not include much, if any, real estate development opportunity, Aron said.
“Heavenly owns very little land,” said Aron. “And development in the Tahoe area is very difficult.”
Aron also said it was likely that Vail Resorts would extend its strategy of selling discounted season passes to the California market.
He said that Vail Resorts charges local skiers about half of what it does its destination guests, who tend to view lift tickets as a small part of the overall cost of a vacation.