Vail for Sale?

Fueled by takeover speculation, the stock of Vail Resorts (NYSE: MTN) shot up 5% last Friday to a 52-week high of $19.30. The front page of Friday's Denver Post announced that the company had hired a New York investment banking firm and was actively courting buyers.

The Denver Post stated that the purchase price of the company would be around $700 million, based on the company's current market capitalization of $681 million. But Foolish investors know that the cost of buying a company outright is often more than the market cap -- the true cost is the Enterprise Value, which takes into account net debt. With more than $635 million in debt and $95 million in cash, the true cost of acquiring Vail Resorts would be $1.2 billion.

The more accurate price tag is a hefty 1.7 times revenues and 2.2 times book value of assets -- rather rich, especially given that the company has managed an average profit margin of less than 1% in the last 3 years and that it just received its third subpoena from the Securities and Exchange Commission as part of an ongoing investigation into its accounting practices. The price also seems high compared with similar firms. Its closest competitor, Intrawest (NYSE: IDR), has an Enterprise Value of $1.8 billion, which is a more modest 1.3 times revenues and 1.3 times book value of assets.

The Denver Post article is light on specifics about potential buyers. It notes that Mike Shannon, a private real estate developer, is "leading the rumored list of possible buyers" and notes that a number of unnamed investment groups are also interested. In my opinion, there are probably very few buyers that have a strategic interest in buying the entire company -- though I've often wondered about the viability of Disney (NYSE: DIS) getting into the ski business and creating Disney-themed, family-oriented ski resorts.

To me, a more likely scenario is that Apollo Management, the private equity firm that currently controls Vail Resorts, will break it up and sell off the parts. In recent years, Vail Resorts has gone on an acquisition binge, losing its focus on the ski operations and shifting to managing lodging and real estate. Revenues from lodging and real estate represented only 8% of total revenues in 1999, but almost 35% by 2003.

It would not surprise me if Apollo were trying to sell Vail's real estate and lodging assets to a company such as Starwood (NYSE: HOT), Marriott (NYSE: MAR), Hilton (NYSE: HLT), or Four Seasons (NYSE: FS). The company could then focus on running the ski operations or sell off the individual ski resorts to local operators.

Like all takeover rumors, this one could well amount to nothing. But for investors who -- like me -- are also avid skiers, it will be particularly interesting to watch unfold.

Fool contributor Salim Haji lives in Denver and does not own any of the stocks mentioned in this article. He does, however, ski frequently at Vail, and hopes that if the company is sold, the price of ski passes for Colorado residents will not increase.