Author of www.HotelLawBlog.com
13 February 2007
Hotel lawyer on the future of the hotel industry. Another milestone has been laid. The Board of Directors of Four Seasons Hotels Inc. — a public company — has formally accepted a $3.4 billion ($82 per share) purchase offer which surfaced on November 6, 2006 by a group of investors whose principals include Bill Gates, the Prince, and Isadore Sharpe, CEO of Four Seasons. It’s a fascinating deal! But what does it really mean?
The transaction
Now only shareholder approval, expected in April 2007, stands between the investors and their completed acquisition of Four Seasons Hotels Inc. of Toronto, Canada. Two thirds of the shareholders must approve the transaction. After three months of deliberations, the Board of Directors approved the buy out offer which will take the company private. The deal’s total value is $3.8 billion, including debt assumed. The purchase price represents a 28% premium to the closing price of Four Seasons shares on the day before the offer was announced last November.
The buyers, acting through investment vehicles, include Bill Gates, Chairman of Microsoft Corp., investing through Cascade Investment LLC, Saudi Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud acting through Kingdom Hotels International of Saudi Arabia, and Four Seasons Chairman and CEO Isadore Sharpe and his family. Bill Gates and The Prince are two of the richest men in the world — both billionaires.
At the time the buyout proposal was first made public on November 6, 2006, The Prince owned a 23% stake in Four Seasons, and Bill Gates’ Cascade Investment owned a little over 8%. The Sharp family’s Triples Holdings owned about 65% of the voting rights in Four Seasons through a multi-class stock structure established when The Prince made a major investment in the company about 15 years ago.
On consummation of the deal, Sharp will receive $289 million under a 1989 incentive plan. Sharp, age 75, and his family will retain at least a 10% interest in Four Seasons, and Sharp will remain chairman and CEO.
Four Seasons manages 74 luxury hotels in 31 countries and has 25 hotels under development. It was founded in 1978 by Isadore Sharp and his family.
Putting the Four Seasons deal in context of recent transactions
The acquisition of a luxury hotel chain by the world’s richest man, Microsoft’s Bill Gates, teaming with a Saudi prince in a transaction approaching $4 billion in value is interesting in itself. Prince Alwaleed has long shown a penchant for brands such as Citibank, Disney, and Fairmont. In fact, after rescuing Citibank in the banking and savings-and-loan disaster of the 1980s, some say the Prince rescued Four Seasons with his timely investment in the first round. In any event, his continued appetite for lodging investment has been demonstrated by his purchase of Fairmont in partnership with Colony Capital for an estimated $3.9 billion (including debt assumption) in January 2006.
But the focus of billionaires and smart money on the lodging industry is nothing new. We have seen the likes of Ty Warner and Michael Dell acquire major luxury properties (a number of which have been Four Seasons hotels, by the way). And, at www.hotellawblog.com, we have talked about a number of other events or transactions that create a context that may be important to discerning the greater meaning of individual transactions such as the Four Seasons buyout. Some of these recent items include:
How Paul Allen, Bill Gates’ Microsoft cofounder, has gotten into hotel mixed-use in a big way
Miami Heat basketball star and NBA champion Shaquille O’Neal has invested in a $1 billion hotel mixed-use project in Miami
Former NBA Champ Earvin “Magic” Johnson has backed a $1 billion Atlanta hotel mixed-use development with hotel, residential and retail components to revitalize three blocks of Atlanta’s midtown area
Andre Agassi and Stefanie Graf, recently finalized a deal to develop a luxury, mountain, all-season resort project, Fairmont Tamarack, at Tamarack Resort in Donnelly Idaho, and are teaming up with Exclusive Resorts–owned by former AOL founder Steve Case — to build Agassi-Graf Tennis and Fitness Centers at a number of the Exclusive Resorts sites
And of course the major investment of Steve Case, founder of AOL, in Exclusive Resorts and Miraval Living is another major deal all in itself (more on that soon).Barry Sternlicht’s Starwood Capital launch of “1” Hotel and Residences, and the $500 million bet in India, and launch into China
CNL sale for $6 billion to Morgan Stanley and Ashford Hospitality Trust
<a href="“>Blackstone’s purchases of Extended Stay America, Wyndham, La Quinta, MeriStar and of course, the non-lodging purchase of EOP
Sure, the quantity and magnitude of the deals has led many to think that “the whole lodging industry is on the block” and certainly, as I have written, Size no longer matters . . . at least in the hotel industry
What does it all mean? Why is this significant? What conclusions can we draw?
When I look at the cumulative transactions described above, I don’t see just ego gratification of rich celebrities. I see a common focus of a lot of very smart money on the lodging industry, and I draw these possible conclusions:
Brands. Brands are very valuable — particularly in the lodging industry. Brands are hard to establish and take a lot of time and money to develop, so there are big barriers to creating new brands.
Luxury. The luxury segment of the lodging industry is likely to be a great place for the near, medium and long term horizon. There are greater barriers to entry, and bigger gains in RevPAR and profits ahead.
Hotel mixed-use. This term will become the password to success in the next decade. It refers to mixed-use projects where the hotel component is the keystone to creating and enhancing value. But successful projects will not just plop hotels next to or on top of residential or retail elements. Integration and complimentary uses must be optimized with people who understand the hotel and other uses of real estate involved. (That is the focus of our Hotel Developers Conference.)
Lodging industry prospects. The lodging industry prospects are excellent for the near and medium term. The fundamentals are all in place. I know it is popular to say, “It cannot continue to be this good much longer,” but I disagree. And the smart money agrees with me. So be alert, but relax. It is OK to harvest the good times too!
Consolidation. A few years ago at JMBM’s <!––>Meet the Money®<!––>, Lawrence Geller gave a keynote address. Although partially tongue in check, in classic “Gellerian” style, Lawrence predicted that in the coming decade (which is probably about now), there would only be three giant hotel companies! We may be closer to that now than anyone would have dared to think at the time. And the industry is likely to get smaller before it gets bigger.
There are some interesting implications here to ponder. . . .
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Our Perspective. We represent developers, owners and lenders. We have helped our clients as business and legal advisors on more than $125 billion of hotel transactions, involving more than 4,700 properties all over the world. For more information, please contact Jim Butler at jbutler@jmbm.com or 310.201.3526.
Jim Butler is one of the top hotel lawyers in the world. GOOGLE “hotel lawyer” or “hotel mixed-use” or “condo hotel lawyer” and you will see why.
Jim devotes 100% of his practice to hospitality, representing hotel owners, developers and lenders. Jim leads JMBM’s Global Hospitality Group® — a team of 50 seasoned professionals with more than $87 billion of hotel transactional experience, involving more than 3,900 properties located around the globe.
Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. They are a major gateway of hotel finance, facilitating the flow of capital with their legal skill, hospitality industry knowledge and ability to find the right “fit” for all parts of the capital stack. Because they are part of the very fabric of the hotel industry, they are able to help clients identify key business goals, assemble the right team, strategize the approach to optimize value and then get the deal done.
Jim is frequently quoted as an expert on hotel issues by national and industry publications such as The New York Times, The Wall Street Journal, Los Angeles Times, Forbes, BusinessWeek, and Hotel Business. A frequent author and speaker, Jim’s books, articles and many expert panel presentations cover topics reflecting his practice, including hotel and hotel-mixed use investment and development, negotiating, re-negotiating or terminating hotel management agreements, acquisition and sale of hospitality properties, hotel finance, complex joint venture and entity structure matters, workouts, as well as many operating and strategic issues.
Jim Butler is a Founding Partner of Jeffer, Mangels, Butler & Marmaro LLP and he is Chairman of the firm’s Global Hospitality Group®. If you would like to discuss any hospitality or condo hotel matters, Jim would like to hear from you. Contact him at jbutler@jmbm.com or 310.201.3526. For his views on current industry issues, visit www.HotelLawBlog.com.