Vail Resorts/Whistler -- summary under Exchangeable Share Acquisitions
Overview
Vail Resorts is proposing to acquire Whistler under a B.C. Plan of Arrangement for a combination of shares and cash, paid by a B.C. subsidiary of Vail (Exchangeco). Resident Whistler shareholders who so elect will receive the share consideration in the form of exchangeable shares of Exchangeco under a largely conventional exchangeable share structure, with those shares being listed on the TSX and having a sunset date seven years out. The cash component of the consideration is nominally in Canadian dollars, except that it is based on an exchange rate of 0.7765 so that, for example, if the exchange rate is less than this six days before the Arrangement implementation date, the Whistler shareholders will receive a correspondingly lower amount. The Vail shares currently have a dividend yield of around 2%. If (contrary to expectations) the exchangeable shares were issued after 2016, any dividends paid by Exchangeco would be subject to U.S. withholding tax under Code s. 871(m).
Whistler
A TSX-listed BCBCA corporation with its principal business office located in Whistler, British Columbia. Whistler is a four season mountain resort. There are 38,159,729 Whistler Shares outstanding of which 23.83% are held by KSL Capital Partners III GP, LLC (through Monroe CA BC (Alternative), LP, Monroe CA BC Investment, SARL and Monroe CA BC Investment II SARL.).
Vail
A NYSE-listed Delaware corporation headquartered in Broomfield, Colorado. Vail Resorts' operations are grouped into three business segments: Mountain, Lodging and Real Estate, which represented approximately 79%, 18% and 3%, respectively, of Vail Resorts' net revenue for the fiscal year ended July 31, 2015.
Exchangeco
1068877 B.C. Ltd., a direct or indirect wholly-owned subsidiary of Vail incorporated under the BCBCA on March 17, 2016. Exchangeco currently has no material assets other than 170,900 Whistler Shares.
Callco
A direct or indirect wholly-owned subsidiary of Vail to be incorporated under the BCBCA prior to the Effective Time of the Arrangement.
Eligible Holder
A Whistler Shareholder that is: (a) a resident of Canada for purposes of the Tax Act and not exempt from tax under Part I of the Tax Act, or (b) a partnership, any member of which is a resident of Canada for purposes of the Tax Act and not exempt from tax under Part I of the Tax Act.
Consideration
Means, (i) in the case of a Whistler Shareholder who is an Eligible Holder who validly elects to receive Exchangeable Shares prior to the Election Deadline in accordance with this Plan of Arrangement, for each Whistler Share, such fraction of an Exchangeable Share as is equal to the product, rounded to six decimal places, of 0.0998 multiplied by the Exchange Rate Adjustment (the ratio of the spot rate to 0.7765), and $17.50 in cash, and (ii) in the case of each other Whistler Shareholder, for each Whistler Share, such fraction of a Vail Share as is equal to the product, rounded to six decimal places, of 0.0998 multiplied by the Exchange Rate Adjustment, and $17.50 in cash. Only such an Eligible Holder who validly elects (or for whom the registered holder validly elects) to receive Exchangeable Shares as part of the Consideration, prior to the election deadline will also be entitled to make a joint election (with Exchangeco) pursuant to section 85 of the Tax Act with respect to its transfer of its Whistler Shares to Exchangeco and receipt of the Consideration in respect thereof.
Plan of Arrangement
- Each Whistler RSU and Performance Award shall be deemed to vest.
- Each Whistler Option shall be deemed to be fully vested and surrendered to Whistler in consideration for that number of Whistler Shares equal to (i) the number of Whistler Shares subject to such Whistler Option immediately prior to the Effective Time minus (ii) the number of whole and partial (computed to the nearest four decimal places) Whistler Shares that, when multiplied by the Fair Market Value of a Whistler Share is equal to the aggregate exercise price of such Whistler Option.
- Each Dissent Share shall be transferred to Exchangeco.
- Each Whistler Share shall be transferred to Exchangeco in exchange for the Consideration.
- Whistler shall file the prescribed form of election to cease being a public corporation.
Vail Resorts and Exchangeco intend to apply to list the Exchangeable Shares on the TSX.
Exchangeable Shares
The Exchangeable Shares will carry, as nearly as reasonably practicable, equivalent economic entitlements to those of the Vail Shares, for which they are exchangeable.
Dividend rights
A holder of an Exchangeable Share shall be entitled to receive on each date, on which the Vail Board declares any dividend or other distribution on the Vail Shares:
(a) in case of a cash dividend or other distribution declared on the Vail Shares, in an amount in cash for each Exchangeable Share equal to the Canadian Dollar Equivalent of the cash dividend or other distribution declared on each Vail Share;
(b) in the case of a dividend or other distribution declared on the Vail Shares in property other than cash or Vail Shares, in such type and amount of property for each Exchangeable Share as is the same as or economically equivalent (as determined by the board of directors of Exchangeco) to the type and amount of property declared as a dividend or other distribution on each Vail Share.
Exchangeable Share Price
Means the aggregate of the current market price of one Vail Share, plus the full amount of all cash and non-cash dividends declared, payable and unpaid, at such time, on the Exchangeable Share, plus the full amount of all dividends declared and payable or paid in respect of each Vail Share which have not, at such time, been declared or paid on such Exchangeable Share in accordance herewith.
Liquidation rights
A holder of Exchangeable Shares shall be entitled to receive from the assets of Exchangeco in respect of each Exchangeable Share held by such holder on the Liquidation Date and amount per share equal to the Exchangeable Share Price on the last Business Day prior to the Liquidation Date.
Liquidation Call Right
Vail Resorts and Callco will each have the overriding right (the "Liquidation Call Right"), in the event of the proposed liquidation of Exchangeco, to purchase from all but not less than all of the holders, all but not less than all of the Exchangeable Shares held by each such holder on payment by Vail Resorts or Callco, as the case may be, to each such holder of an amount per share equal to the Exchangeable Share Price.
Retraction right
A holder of Exchangeable Shares shall be entitled at any time to require Exchangeco to redeem any or all Exchangeable Shares for an amount per share equal to the Exchangeable Share Price.
Retraction Call Right
Vail Resorts and Callco shall have the overriding right to purchase from such holder on the Retraction Date all but not less than all of the Retracted Shares held by such holder on payment by Vail Resorts or Callco of an amount per share equal to the Exchangeable Share Price.
Redemption Right
Subject to applicable laws and the due exercise by Vail Resorts or Callco of the Redemption Call Right, Exchangeco shall on the Redemption Date redeem all but not less than all of the then outstanding Exchangeable Shares (other than Exchangeable Shares held by Vail Resorts and its affiliates.
Redemption Call Right
Similar to Retraction Call Right
Redemption Date
The date which is no earlier than the seventh anniversary of the Effective Date, unless (a) the aggregate number of Exchangeable Shares issued and outstanding (other than Exchangeable Shares held by Vail Resorts and its subsidiaries) is less than 5% of the number of Exchangeable Shares issued on the Effective Date; or (b) a Vail Control Transaction is proposed.
Special Voting Shares
Vail Resorts will issue to and deposit with the Voting and Exchange Trustee the Special Voting Share to be held of record by the Voting and Exchange Trustee as trustee for and on behalf of, and for the use and benefit of, the “Beneficiaries” (the Exchangeable Shareholders) and in accordance with the provisions of the Voting and Exchange Trust Agreement.
Exchangeable Share Support Agreement
To be executed by Vail Resorts, Callco and Exchangeco.
Canadian tax consequences
Ancillary rights and call rights
A Resident Holder who receives Exchangeable Shares as part of the Consideration will also receive the ancillary rights, connected to such shares (being the voting rights and other rights. Whistler is of the view that the ancillary rights have nominal fair market value. Whistler is of the view that the Call Rights have only a nominal fair market value. Based on the view of Whistler, the granting of the Call Rights by a Resident Holder who acquires the Exchangeable Shares will not result in any material adverse income, tax consequences to such Resident Holder.
Taxable exchange
The exchange of Whistler Shares for Consideration consisting of Vail Shares and cash will generally be a taxable event to a Resident Holder.
S. 85 elections
In order to make an election under s. 85(1) or (2), an Eligible Holder must provide two signed copies of the election forms at the address specified in the tax election package within 90 days following the Effective Date, duly completed with the details of the number of Whistler Shares transferred and the applicable elected amounts for the purposes of such election. Thereafter, subject to the election forms being correct and complete and complying with the provisions of the Tax Act the forms will be signed by Exchangeco and returned to such former beneficial owner of Whistler Shares within 90 days after the receipt thereof for filing with the CRA.
U.S. tax consequences
Taxable exchange
The exchange by a U.S. Holder of Whistler Shares for cash and Vail Shares pursuant to the Arrangement is expected to be a taxable transaction.
PFIC rules
Whistler does not believe that it is a PFIC during its current taxable year or that it was a PFIC during any prior taxable year.
Exchangeable Shares
Whistler, Exchangeco and Vail Resorts currently intend to take the position that the Exchangeable Shares constitute stock of Exchangeco and not shares of Vail Resorts for U.S. federal income tax purposes. Regardless of whether the Exchangeable Shares are treated as Vail Shares for U.S. federal income tax purposes, if the Arrangement is completed after December 31, 2016, under Treasury Regulations issued under s. 871(m), dividends paid on Exchangeable Shares to Non-U.S. Holders are likely to be subject to U.S. withholding tax in the same manner as if the Exchangeable Shares were Vail Shares. However, assuming that (i) the Exchangeable Shares are treated as shares of Exchangeco for U.S. federal income tax purposes, rather than shares of Vail Resorts, (ii) dividends paid on the Exchangeable Shares do not constitute U.S. source income, and (iii) the Arrangement is completed prior to January 1, 2017, then neither Exchangeco nor Vail Resorts currently intends to withhold any U.S. tax from any dividends paid with respect to the Exchangeable Shares.