Raider’s gambit could doom historic hotelier

If New York financier Carl Icahn succeeds with his shakedown gambit at Fairmont Hotels & Resorts Inc., an iconic piece of Canadian heritage, including the historic Royal York, Château Frontenac, Banff Springs and Château Laurier hotels, could be broken up and sold to a variety of owners.

That might generate a shortterm windfall for Fairmont shareholders including Icahn, who revealed Monday he has taken a 9.3 per cent stake in the chain and is demanding the sale of undervalued properties among Fairmont’s more than 80 hotels and resorts in Canada, the U. S., Britain and elsewhere. But it has the potential to destroy the Fairmont chain as we know it, the second bid by a Torontobased hotelier to build a global chain of luxury inns. In a perverse kind of way, Icahn is a terrific advertisement for multiple- voting shares, which are routinely condemned by experts in corporate governance as an assault on shareholder democracy. Fairmont and Four Seasons Hotels Inc., also based in Toronto, have disappointed investors with setbacks ever since the terrorist attacks of Sept. 11, 2001 — a blow to the global tourism industry that was followed by a recession that stripped high- rolling business travellers of their expense accounts, and then by soaring air fares due to the spike in oil prices. Where the two chains differ is that from the moment Four Seasons went public two decades ago, founder and CEO Issy Sharp insisted on a dual- class voting structure by which he controls the majority of votes despite owning less than half the equity. As Sharp has said repeatedly when confronted on this question, he can’t abide letting his life’s work slip into the hands of a potential slash- and- burn artist, not when it took him 10 years alone to negotiate his first location in Tokyo after prolonged negotiations with financiers and the Japanese government.

Fairmont, the former Canadian Pacific Hotels, does not have the luxury of being protected from raiders looking for a quick windfall at the expense, in this case, of scrapping the 119- year legacy of railway engineer and pioneer hotelier William Cornelius van Horne. Fairmont is a widely held firm, although the Saudi prince al Waleed bin Talal holds about 5 per cent of the stock, a result of his role in folding his interest in the San Fran-

analysts say.

“ A hotel owner’s profitability is driven on the bottom line, which could fluctuate up and down depending on how the economy is doing,” said one analyst who did not want to be named. “ But the manager, because they’re taking a percentage of the top line, ( has) a fairly stable cash flow.”

In January, Fairmont assumed management of the Savoy Hotel in London while others took ownership.

In Canada, the United States, Mexico, Bermuda and several other countries, Fairmont operates 88 luxury hotels and resorts, including the Banff Springs, The Queen Elizabeth in Montreal and the Scottsdale Princess in Arizona. The company wholly owns 15 properties and has a minority interest in 13.

Legacy’s portfolio includes 24 hotels and resorts in Canada and in the United States. AU. S. regulatory filing submitted Monday by Icahn Partners Master Fund LP and other Icahn- related entities said “ the registrants intend to encourage ( Fairmont) to pursue strategic alternatives to maximize the value,” including a sale of owned hotels and non- core assets, with proceeds directed to shareholders through a dividend or stock repurchase program.

National Bank’s Smith agrees Fairmont stock is undervalued, and puts much of the blame on the Canadian hotel market.

In August, travel by Americans to Canada fell to its lowest monthly level in more than 25 years, probably due to the strong Canadian dollar and high gasoline prices, according to Statistics Canada. About 2.4 million Americans visited Canada that month, down 5.9 per cent from July, the lowest level since the late 1970s, seasonally adjusted data show.

“Fifty per cent of Fairmont earnings come from Canada. Wall Street tends to focus on this year’s earnings or next year’s earnings, and ( at) Fairmont, things don’t look so rosy,” Smith said.

Nevertheless, Smith speculates Fairmont’s properties would invite a bidding war.

“These are very large, very valuable hotels. There is a very strong demand from private hotel investors,” he said. “Those investors, they don’t focus on this year’s income, they focus on the next 10 to 15 years.”

Given the “ robust” demand for high- quality resort properties, the company could be sold for a premium of 10 to 20 per cent, a National Bank Financial report said.

“ If you wanted to sell Copley Plaza in Boston, there would basically be an auction. There would be 10, 15 bidders. You could sell any one of those hotels and it would only take three or four months, maximum,” Smith added.

Fairmont chief executive William Fatt said in a statement yesterday the filing includes several proposals the company is already pursuing, “ such as the continuation of our share repurchase program and the sale of non- core assets.”

Fatt also said the company expects to meet with Icahn soon. “We have other large shareholders that have similar stakes that he does. We look forward to hearing more about what Mr. Icahn has to say about how we could enhance our effort to our shareholders,” company spokesperson Denise Achonu said.