Colony, Kingdom Moving Into Fairmont –


Target: Fairmont Hotels & Resorts Inc

Price: $3.9B ($45 per share)

Buyers: Colony Capital; Kingdom Hotels International

Sellers: Fairmont shareholders

Financial Advisors: Fairmont: UBS Investment Bank,

Avington International, Scotia Capital Inc.; Buyers: J.P.

Morgan Securities Inc.

Legal Counsel: Colony: Willkie Farr & Gallagher LLP;

Kingdom: Hogan & Hartson LLP

Colony Capital, which last year acquired Raffles Hotels & Resorts, is in the market for another hotel deal. The Los Angeles-based private equity firm, late last month, teamed up with Kingdom Hotels International, to acquire Fairmont Hotels & Resorts Inc. (TSX/NYSE: FHR) for $3.9 billion (including debt assumption), or $45 per share.

Once the all-cash transaction is closed, which is expected to happen sometime in the second quarter, Fairmont will be combined with Raffles, creating a luxury hotel business valued at approximately$5.5 billion. Incidentally, when Colony acquired Raffles last September for about $1.7 billion, it did so by beating a competing bid placed by Fairmont, a source close to the transaction told Buyouts. Colony declined to comment on the transaction until after it is completed.

Colony’s partner in the transaction, Kingdom Hotels, is owned by Saudi investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud, who already owns about 5% of Fairmont.

The $45 per share, purchase price for 100% of Fairmont’s stock represents a 28% premium over the hotel chain’s $35.13 closing share price on Nov. 4, 2005, the last trading day before interest was expressed in the hotel chain by Carl Icahn. Icahn, who already owns between 9% and 10% of Fairmont, made a hostile $40-per-share (about $1.2 billion) bid for a total 51% stake in the company.

After the Icahn takeover attempt, Fairmont’s board created a special committee to review strategic options that “attracted significant interest from a number of parties,” the hotel chain said in a statement. In light of the Colony/Kingdom-led buyout, Icahn reportedly stands to make about $80 million for his stake in Fairmont.

“The role that Colony is playing with [Kingdom] is that of the white knight for Fairmont,” the source said. Indeed, the deal includes a $115 million break-up fee, which analysts think is significant enough to deter competing bids from derailing the transaction. The source did not disclose the expected ownership split between Colony and Kingdom.

According to a research note published by RBC Capital Markets, the $3.9 billion transaction value works out to 22.8x Fairmont’s 2005 consolidated EBITDA estimate of $171 million.

Thomas Barrack, chairman and CEO of Colony, said in a statement that given Fairmont’s and Raffles’s strategic fit and complementary destinations, “Joining the two luxury companies creates an ideal platform for continued international expansion.”

Combined, the two hotel chains will have 120 hotels in 24 countries. Per terms of the transaction, the two entities will remain independent of each other in that Fairmont will retain its brand-name, management and Canadian headquarters. Singapore-based Raffles, which owns 33 properties, located primarily across Asia and Europe, will also retain its independent brand identity.

The transaction requires approval from two thirds of Fairmont’s shareholders at a meeting anticipated to take place in April. Colony Capital’s equity investment for this transaction will come from Colony Investors VII LP, which closed with $1.2 billion last year, the source said.

In addition to Raffles, other hotel and resort investments made by Colony include the Costa Smeralda resort in Sardinia, Italy; the Amanresorts hotel chain; New York’s Stanhope Hotel; London’s Savoy Group; the Atlantic City and Las Vegas Hiltons; and the Accor Casinos in Europe.

Kingdom Hotels owner Prince Alwaleed, meanwhile, is a major shareholder in Four Seasons Hotels and Resorts, the Mvenpick Hotels & Resorts and the George V Hotel.

As of press time last Wednesday, Fairmont shares were trading at $44.18.