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Intrawest on market

From Wednesday's Globe and Mail

Resort operator Intrawest Corp. has put itself in play, hiring an investment banker and saying that the door is open to “interesting ideas.”

The Vancouver-based company is best known for its ski resorts, which include its flagship Whistler Blackcomb operations. It has hired Goldman Sachs & Co., and is looking at ways to “enhance shareholder value,” which could include partnerships or mergers. The announcement also comes as world attention is now focused on Whistler as one of the hosts of the winter Olympic Games in 2010.

“We want to let the whole world know we are ready to go to the next stage,” chief executive officer Joe Houssian said in an interview.

The move makes Intrawest the latest in a string of Canadian companies with large real estate holdings that have signalled they believe they are undervalued by public markets. The announcement also follows the deal to take private another major Canadian player in the hospitality industry, Fairmont Hotels & Resorts Inc.

Like Fairmont, Intrawest also has become the target of a U.S. investor known for its aggressive tactics. Connecticut-based Pirate Capital LLC is now the firm's largest shareholder with roughly a 12-per-cent stake.

The news pushed the stock to $36.19, up $2.99 to a 52-week high, giving the company a market capitalization of $1.8-billion.

Mr. Houssian said Intrawest has evolved from a simple ski resort operator to an international leisure company with a lengthy list of high-end customers. The question now, he said, is how to finance future expansion “in the most intelligent way.”

The answer, he said, may not be an outright sale. “We are open to anyone who has some interesting ideas,” he said.

Indeed, Mr. Houssian, who founded a real estate firm in the mid-1970s that was a predecessor to Intrawest, insisted that the announcement does not mean there is a For Sale sign on his firm.

“There is nothing to bid on here,” he said.

Intrawest's largest shareholder had a different take on things.

“I think the company should be a private company at this point,” said Pirate Capital analyst Stephanie Tran. “We would definitely support the sale of the entire company.”

She said the hedge fund has approached possible buyers and investment bankers, and feels that the firm should be valued in the range of $43 (U.S.) to $48 a share.

“There is a lot of value to be unlocked in the real estate holdings,” she said. Private investors, she said, given the current low cost of financing, are better able to “make the numbers work.”

Ms. Tran said Pirate is not alone in this view. “There have been suggestions by a number of shareholders that this is the way to go.”

Mr. Houssian yesterday insisted that the decision to hire an investment banker was not a response to shareholder pressure. He described the move as part of a 15-month review that has led to the announcement. “This was not a knee-jerk reaction. There was a long-term analysis that brought us to this point.”

Some analysts reacting to the news wondered if the initiative might lead to a breakup of the company, with some suggesting that parts of the business could be reborn as an income trust.

Mr. Houssian said all options are on the table, but he would prefer to keep the company together. That's because, he said, a key part of Intrawest's growth strategy is to tap into existing customers in one part of its operations, such as its ski resorts, that can become users of other services, such as its exotic tour operator Abercrombie & Kent.

National Bank analyst Michael Smith, who has an “underperform” rating on Intrawest, estimates that on a private market basis the company has a value of between $22.30 and $27.60. That compares with its U.S. close yesterday of $31.84 and his target of $22.50.

He questioned how investors will benefit if Intrawest sells off assets to fuel growth. If that is the plan, than none of the proceeds will be returned to shareholders, he said.

© The Globe and Mail

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