The Mountain Times

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Once upon a time in history: The sale of Killington

Editor's note: This is part three in a four-part series that provides an historical perspective on the Killington Village and lack of its completion over a 44-year period.

One of the ironies of history is "live long enough" and you see that history has a funny, if not perverse, way of repeating itself.

The early 1970s saw some terrifically challenging years for Vermont's ski industry when low natural snowfall, poor economy, and recession adversely affected the area. The same was true for the early 1980s and 1990s (and 2000s, but we're not there yet in this series.)

For areas that were struggling to catch up with the need for more snowmaking, or to pay for increasing liability insurance premiums, the result was often bankruptcy and/or closure. Vermont lost some 30 areas from 1970 to 1985 and another 9 by 1990. From 79 areas operating in 1970, there were only 40 areas in 1976, 33 in 1991, and 24 for the
2008 season, including private and municipal surface lift areas.

In the 1970s, all but six of today's remaining ski areas changed hands. Mount Snow, which faced bankruptcy, was purchased by Killington. In 1982, Okemo was unable to borrow money to install a needed chairlift (banks were not in the lending mood-sound familiar?), so stockholders/owners decided to sell the area to someone with the wherewithal to update the mountain. 

Ascutney, which pumped over $50 million into a base area village and mountain improvements, closed in 1991 and sold at bankruptcy auction for $1.1 million in 1993 (closed again in 2010). Bolton Valley also went through closings and several ensuing owners in the 1990s (now doing well). Ditto Burke Mountain.

The challenge to survive recessions as well as to update snowmaking and lifts and offer village amenities so as to compete simply "did in" many areas during a decade-long stagnation of skier visits.

This trend was not limited to Vermont. Nationally, a total of 1,100 areas had functioned at some point. In 1983 and 1984 seasons, there was a high of 735 operating areas; that steadily declined to 481 areas in operation today.

Killington/S-K-I Challenges
As owner of Killington and Mount Snow, S-K-I Ltd. had been one of the top five ski companies in the country by skier visits from the 1982-3 through 1986-87 ski seasons, and the only one that showed consistent growth during that time period. The purchase of Goldmine (Bear Mountain) in January 1988 was part of an aggressive acquisitions strategy to continue that growth.

But without a commercial core with shops, restaurants, and slopeside hotels and faced with western competition (from growing resorts in Colorado, California, and Utah as well as cheaper airfares), Killington, which competes with world-class resorts, was at a competitive disadvantage in the 1990s.

Social trends, cultural values, and skier demographics were changing. Skiers and snowboarders were now looking for more activities than just a day on the slopes followed by the vibrant nightlife of the Killington Road.

At the same time, interval ownership at slopeside villages was becoming the new trend and sensing the change in the industry, Killington's parent company S-K-I Ltd. changed direction yet again.

Perseverance and Progress
Developers were pursued for Killington Village, but S-K-I failed to find takers in the early 1990s recession.
The ski area did make some progress with other significant issues, notably the idea of giving up on Parkers Gore and moving in the direction of Pico.

Vermont Senator Jim Jeffords had initiated a mediation process that ultimately resulted in a January 1991 Agreement among some 30 parties that addressed a number of issues and paved the way for Killington to expand in the direction of Pico. But when permit conditions proved "too onerous," Killington backed out (July 1991).

While stymied at Killington with growth of the village or expansion to Pico, Smith, who had turned daily management of Killington over to Hank Lunde, turned S-K-I attention to expansion and growth elsewhere.

Larry Jensen, who worked in business development for S-K-I before becoming Killington's controller in 1993, recalled that the company had been seriously interested in Steamboat, but that the price was not in line with expectations for revenues.

S-K-I was looking at upwards of 20 ski areas a year "always with an eye toward purchasing at a price that they felt was prudent and reasonable," he explained. S-K-I Ltd. would not pay two or three times what an area was capable of earning, he said, noting the importance of not being overleveraged and the company's history of carrying modest debt loads.

As a result, S-K-I lost out on bids to purchase Steamboat and Breckenridge, which were sold to Japanese firms at high prices.

S-K-I entered into a marketing management agreement with Bromley in 1994 in an exploratory move to acquire that area. Similarly, Haystack, near Mount Snow, was acquired in a management and buyout process (1994). In 1994 S-K-I purchased Waterville Valley (NH) and a majority interest in Sugarloaf (ME).

But in 1995 they also sold Bear Mountain (CA) after a Mexican Spotted Owl allegedly settled in between two ski trails. Rather than go through another costly environmental process to proceed with plans there, S-K-I sold.

Back home at Killington, President Lunde was also able to make some progress on the stalemates. On February 20, 1996, the Agency of Natural Resources (ANR) announced that the State and Killington had signed a "Memorandum of Understanding" to explore a land exchange. Killington would exchange its Parker's Gore lands for land in the vicinity of the Killington Basin.

At the time, Lunde noted that there were "many ideas on the table" but "no hard and fast proposal." Those ideas included the issue of the Killington-Pico Interconnect, a water source for snowmaking, a snowmaking pond for Pico, and the aforementioned January 1991 Agreement. (Pico had once again approached the area regarding a merger.) But it was too late.

The Sale of Killington
On February 13, the S-K-I Board had accepted an offer from a party to acquire it for $18 a share, reasoning that the acquisition was in "the best interest of the shareholders."

In the fall of 1993, S-K-I Ltd. had obtained the services of Wertheim Schroder & Co. as 'strategic advisor." The investment firm offered a variety of services, including advice on mergers and acquisitions and initial public offerings. Schroder contacted over 50 potential investors. Over ten investors/companies had made overtures but none had resulted in an acceptable proposal.

Then in January 1996, a cash offer of $17 a share for 100 percent of the company rose to $18 a share for all shares. The party had a substantial deposit and ski experience so the board had determined it was a viable offer.

Upon the shareholders' affirmative (73 percent) June vote, S-K-I Ltd. passed to LBO Enterprises President and Founder Leslie B. Otten.

Many people erroneously assumed that Smith and Joe Sargent had simply wanted to get their money out of the company and retire. Nothing could be further from the truth. (Smith went on to consulting and Sargent is still working.)

Asked in 2008 why they sold, Smith had to think - there was no single answer but a myriad of factors. When asked the same question, Joe Sargent replied, that's "simple. It was a decision that Pres and I made, and Wally Morrison, too." [The three were the executive committee.] The reason, he explained, was the new industry model centered on real estate and they had a serious reluctance to get into real estate, particularly the interval ownership trend on the horizon.

"Neither of us knew the real estate business or wanted to do it," Sargent had noted.

The real estate business model with interval ownership meant that the nature of competition would change. They realized that resorts like Okemo were doing exceptionally well using real estate profits to reinvest in growing the mountain and skier visits.

Smith and Sargent preferred to drive skier visits through building a lift, not real estate.
They had tried to find a strategic partner or investor that was to their liking but had come up empty. So with the decision not to get into real estate themselves, they followed "a deliberate process and had even approached the Japanese to see if we could work out a 50/50 partnership, but we were too late," Sargent said.

With an expand-and-grow or stagnate-and-die mantra, S-K-I was interested in the cash offer.

Smith also noted that he had only been "moderately successful" with the acquisitions. While Mount Snow worked out extremely well, and Waterville and Sugarloaf were doing well, the earlier Sunday River and later Bear Mountain forays had not turned out as hoped. "Maybe it was time for a change," he recalled thinking.

Dave Wilcox, former vice president and mountain manager, said, "Killington offers the finest ski experience east of the Rockies, but it needs the excitement of a world-class village to match." Others concurred.

Killington needed an owner who could envision how to make that happen.

Smith conceded that he was disappointed not to have been able to get skiing in Parker's Gore and the Burley designed Village Center done, and he hoped the new company would continue those pursuits.

Next week, we'll conclude this series with a look of progress made by the new owner.

Tagged: killington, sale