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The Honolulu Advertiser
Posted on: Saturday, December 3, 2005

Fairmont takeover planned

By Matthew Keenan and Danielle Kost
Bloomberg News Service

Billionaire Carl Icahn plans a $1.19 billion hostile offer for control of Fairmont Hotels & Resorts Inc. and said he would sell the company.

Icahn, who already owns 9.3 percent of Toronto-based Fairmont, wants to buy as many as 29.6 million shares for $40 each, giving him a majority stake.

The company owns or manages 88 luxury hotels, including the Fairmont Orchid on the Big Island and the Fairmont Kea Lani Maui.

Icahn said in a statement yesterday Fairmont should be sold to a larger hotel chain "that is able to more effectively take advantage of economies of scale."

Icahn, 69, raised $1.6 billion for two hedge funds last year to pursue what he calls "activist" investing, or pressing underperforming companies to boost their stock prices. Recent targets have included Time Warner Inc., Blockbuster Inc., where he now sits on the board, and Kerr-McGee Corp.

"He's trying to unlock value and that's a good thing," said Joe Fath, an analyst at T. Rowe Price Group Inc. in Baltimore, Fairmont's largest investor with 7 million shares, or 9.7 percent, as of Sept. 30. "This comes from his frustration that management hasn't been moving fast enough and it's a hot seller's market."

Fairmont struggled earlier this year as the rising Canadian dollar damped American travel to Canada, where it has 59 hotels. Net income for the first nine months of 2005 declined to $99.1 million from $160.2 million.

Meanwhile, hotel acquisitions are surging with a rise in worldwide travel. The value of hotel industry takeovers announced or completed this year has increased to $24.9 billion from $12.6 billion in all of 2004, according to data tracked by Bloomberg. Last month Starwood Hotels & Resorts Worldwide Inc. agreed to sell 38 hotels to Host Marriott Corp. for $2.33 billion and Blackstone Group LP offered to buy La Quinta Corp. for $2.28 billion.

Fairmont criticized Icahn's offer.

"Fairmont would strongly oppose any partial bid which is coercive by its very nature and does not treat all shareholders fairly and equally," Chief Executive Officer William Fatt said in a statement. The company's board has interviewed investment banks to help it find rival buyers to fend off Icahn, Canada's Globe and Mail newspaper reported last month.

Icahn, who disclosed his initial Fairmont stake on Nov. 7, didn't return calls to his office in New York.

Investors are betting that Fairmont's shares will fetch more than Icahn's $40 offer. They rose $1.89, or 4.9 percent, to $40.68 in New York Stock Exchange composite trading yesterday afternoon, giving the company a market value of $2.94 billion.

"It clearly puts them in play," said David Katz, an analyst at CIBC World Markets in New York, who rates Fairmont a "sector perform." He said the most likely scenario would be an acquisition by a team including a major hotel company and real estate investment trust or private-equity firm.