Billionaire U.S. financier Carl Icahn has raised the stakes in his battle with Fairmont Hotels & Resorts Inc., serving notice that he plans to make a $1.19-billion (U.S.) hostile offer for a controlling stake in the luxury hotel operator in order to force a sale.
Mr. Icahn, a corporate raider with a reputation for taking on the boards of his target companies, will offer $40 a share to raise his ownership in the firm to 51 per cent.
Last month, he shocked many with news he had taken a 9.3-per-cent stake in Toronto-based Fairmont, which owns such Canadian landmarks as the Jasper Park Lodge and the Banff Springs hotel.
Fairmont chief executive officer William Fatt was quick to counter Mr. Icahn's move, characterizing him as an opportunistic investor with no regard for Fairmont's history in Canada or its long-term plan.
“This is just a quick flip for him,” Mr. Fatt said in an interview. “He really does not have any interest in owning this company, just putting it into play.”
Mr. Fatt said the fact that “a guy in New York” can take such actions “is a sad reflection on the free enterprise system.”
In a press release yesterday, Fairmont called the partial bid “coercive by its very nature,” noting that it would allow Mr. Icahn to control the company without paying a takeover premium.
For his part, Mr. Icahn made it clear that if he is successful, he intends to sell the hotel company that was once part of the Canadian Pacific conglomerate.
“Fairmont and its shareholders would benefit if the company were acquired in its totality by a larger hotel operator that is able to more effectively take advantage of economies of scale,” said a statement issued yesterday by Mr. Icahn's investment funds.
Mr. Icahn was not available to comment yesterday, a spokeswomen in his office said.
Mr. Icahn's offer is conditional on regulatory approval and at least 18.1 million shares being tendered. The offer is a 24.2-per-cent premium above the average closing price of Fairmont shares over the past 60 days. The stock has risen about 17 per cent in the past month.
Yesterday, Fairmont shares rose $1.83 (Canadian) or 4 per cent to close at $47.05 on the Toronto Stock Exchange.
While Fairmont has long stated that it plans to sell off some of its assets and concentrate on the hotel management side of its business, some investors have been frustrated by the pace of change. At the same time, interest by investors in the hotel sector has hit record highs this year in Canada and activity also has been strong internationally.
Michael Smith, an analyst at National Bank, said the latest move by Mr. Icahn clearly puts pressure on the Fairmont board to take action, likely by looking for a higher counteroffer.
Mr. Smith, who has a target price of $42 (U.S.) on Fairmont, called Mr. Icahn's offer low. He said the list of possible white knights is a long one, but has to include Saudi Prince al-Waleed bin Talal, who owns just over 5 per cent of the company. His Kingdom Hotels International is also a partner in several ventures with Fairmont.
Whatever unfolds, Mr. Smith said Mr. Icahn will be rewarded, either with a controlling stake in Fairmont or a higher price for his shares.
Mr. Fatt said he has had conversations with the Saudi prince in the past week or two, but would not give further details.
He said Fairmont's board is looking at a number of options to enhance shareholder value and will respond when Mr. Icahn makes a formal offer.
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.
