Ski resort will cash out small investors

Stock split allows Winter Sports to trim down to handful of shareholders

The Daily Inter Lake

The parent company of Big Mountain Resort is undergoing another round of corporate restructuring, this time a reverse stock split that will shut out more than 100 shareholders.

Winter Sports Inc. has scheduled a special meeting on Nov. 28 to have shareholders vote on the proposal, but it's a done deal.

A report sent to shareholders noted that because Winter Sports directors control roughly 61 percent of the outstanding common stock and intend to vote all of their shares in favor of the reverse split, the reverse split is "virtually assured."

After the restructuring, there will be 40 to 50 shareholders in Winter Sports.

The change won't overtly impact the operation of the ski resort, Winter Sports President Fred Jones said.

"I don't anticipate it means anything for skiers," Jones said. "They're streamlining the corporation to give them options for tax planning. With fewer shareholders we could change the corporate structure for tax advantages."

He estimated this stock split - a 1-for-15 reverse split of common stock with a cash payment for resulting fractional shares - will cash out between 100 and 110 current shareholders. Winter Sports board members Paul Coe, Dennis Green, Mike Muldown and Alan Stinson will be cashed out in the split, the shareholders report said, unless they increase their holdings before the vote.

In May 2004 shareholders approved a 1-for-150 reverse stock split that freed Winter Sports from regulation by the Securities and Exchange Commission. Those owning 150 or more shares were issued new certificates for their post-split shares and a cash payment for any fractional shares.

There were roughly 900 shareholders before the 2004 stock split.

LONGTIME SHAREHOLDER Dale Duff of Whitefish said he's optimistic the latest stock split will help the corporation's ability to operate the ski resort, but he's also "somewhat disappointed and a little saddened.

"It doesn't mean good things won't happen, but it means the little guys are a little more detached," Duff said. "Whitefish residents feel like the mountain is part of their community and this action diminishes that."

Duff holds two shares of Winter Sports stock, one in his name and one in the name of his company, Rocky Mountains Transportation. His father, Roy Duff, was a longtime Winter Sports board member and "stockholder from the get-got," he said.

Jackie Adams of Kalispell is another longtime shareholder affected by the reverse split. She sent in her proxy for the special meeting with the "abstain" box marked.

"What's the point? It's a done deal," she said.

Adams has been a stockholder since 1959, when she and her husband, Dick Adams, bought a share for $100 to support the ski resort. When there wasn't money for dividends during lean years, stockholders were simply given more stock, she recalled.

"Emotionally, it's a tough thing for people in Whitefish," Adams said. "It's handing over control to the big investors."

Last year's Winter Sports annual meeting was the first time in the resort's 59-year history that local nominees for the board of directors were outnumbered by out-of-state investors largely representing the financial sector.

William P. Foley II, chief executive officer for Fidelity National financial, the largest title insurance company in America, is Winter Sports' biggest shareholder, with 48.8 percent of the stock. He bought a sizable number of shares from Dick Dasen Sr. after Dasen, who had been the largest shareholder, was charged with prostitution and other sex crimes in 2004.

IN THE latest reverse split, Winter Sports will pay about $3.3 million for all resulting fractional shares. A pre-split value of $3,000 per share was established by a committee of directors with fewer than 15 shares and Willamette Management Associates.

Jones said the analysis took into account future cash-flow projections for both the ski resort and land development.

Winter Sports closed a private placement of its common stock in June 2005, raising $12.5 million by issuing an additional 4,183 shares of common stock. The corporation subsequently completed the first stage of a two-phase private-placement offering to accredited investors in July this year, which raised just over $6 million. The second stage will close on March 31, 2007 and is expected to bring in another $6 million.

The offerings give the corporation about $24 million in new capital.

"That's a hell of a deal," said Mike Collins, former president and CEO for Winter Sports.

When Collins took the reins of Winter Sports in 1988, the corporation had $2.4 million in equity, and about $10 million when Collins resigned in 2003.

"They certainly have more capital," he said. "It will give them the ability to move faster" in completing resort projects.

Collins, who will be cashed out in the reverse split, said he's interested in seeing the new master plan for Big Mountain play out.

"It'll be interesting to see which projects they pick," he said. "The physical terrain dictates the plan."

He wonders how the new plan's emphasis on development in the Outpost day-lodge area (at the bottom of Chair 6) will affect businesses already established in the village area.

Collins does consulting work for ski areas and said he doesn't miss the day-to-day grind of being the resort's top executive, especially during years like this one, when snow is still scarce in mid-November.

"About now, I'd be sweating bullets," he said.

THE PURPOSE of the latest reverse split is three-fold, the shareholders report said - recapitalize the company, minimize the likelihood Winter Sports would be required to register and file reports under the Exchange Act, and increase the likelihood of forming a Subchapter S corporation.

"It's a business decision," shareholder Gary Harding said. "I don't have a problem with it."

Harding, who was a Winter Sports board member for 15 years, has been a shareholder since the 1970s and will be cashed out in the reverse split.

"It's a closely held corporation and I can understand their motives," he said. "It's a reasonable thing for them to do."

Reasonable or not, the takeover by large investors essentially disassembles much of the camaraderie that was forged through decades of community ownership, Duff said.

"People had a certain shared cohesiveness and that did a lot toward" building Big Mountain into a destination resort, he said. "George Prentice and Ed Schenck [resort founders] had a vision and the locals bought into that vision. The community took intense pride in the success of WSI."

Features editor Lynnette Hintze may be reached at 758-4421 or by e-mail at lhintze@dailyinterlake.com