Bluegreen to be bought by Diamond

Business Wire said:

BOCA RATON, Fla.--(BUSINESS WIRE)--July 21, 2008--Bluegreen Corporation (NYSE: BXG) (Bluegreen(R) or the Company), a leading provider of Colorful Places to Live and Play(R), announced that today it has signed a non-binding letter of intent relating to the acquisition of the Company at a price of $15.00 per share by Diamond Resorts International (Diamond Resorts), which would value this transaction at approximately $500 million, exclusive of Bluegreen's outstanding debt. The acquisition is subject to the completion of due diligence and the execution of definitive agreements.

Under the terms of the letter of intent, Bluegreen has granted Diamond Resorts an exclusive right of negotiation through September 15, 2008, during which time Diamond Resorts will conduct more extensive due diligence.

Diamond Resorts, based in Las Vegas, Nev., is one of the largest vacation ownership companies in the world with 110 branded and affiliated resorts in 14 countries with destinations throughout the continental United States and Hawaii, Canada, Mexico, the Caribbean and Europe, more than 360,000 owners and members and more than 5,500 associates worldwide. In April 2007, Diamond Resorts acquired Sunterra Corporation for approximately $750 million.

It is envisioned that the definitive agreement whereby Diamond Resorts would acquire Bluegreen would include a customary "go shop" provision permitting Bluegreen to actively seek transactions that would provide greater value to its shareholders.

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So it unclear if this is real or not, since it is a "non-binding letter of intent " but it looks like Diamond is getting a lot bigger.

$ $ $ $

Bill4728 said:

So it unclear if this is real or not, since it is a "non-binding letter of intent " but it looks like Diamond is getting a lot bigger.

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Whoa !

If this goes through, just think of all the money that will start coming in as Diamond sells memberships in T.H.E. Club to all those BlueGreen timeshare owners.

Shux, Diamond will need some new 18-wheelers just to haul all that fresh money down to the bank -- not that there's anything wrong with that.

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

AwayWeGo said:

Whoa !

If this goes through, just think of all the money that will start coming in as Diamond sells memberships in T.H.E. Club to all those BlueGreen timeshare owners.

Shux, Diamond will need some new 18-wheelers just to haul all that fresh money down to the bank -- not that there's anything wrong with that.

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

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It will be interesting to see how DRI blends these two programs together if the deal goes through.

The easiest thing to do from the Bluegreen side is to add the DRI resorts to Select Connections, create a point value for DRI resorts and charge an extra fee for access into these resorts. If they did this, the Bluegreen program could stay essentially in tact and the extra value will be considerable to customers.

Not sure what they would do on the Sunterra side, but there may be a similar mechanism. The reason why something like that would be a good way to start is that it leaves the teams essentially in place to deliver revenue and reservations. If you change anything too much, there are deeds that need to be redone and reservation systems that need to be rebuilt. That takes time, money and precise execution. Hard to do in a short time frame.

By doing the above, it gives DRI the chance to build an infrastructure consolidation plan over time to reduce operating costs.

BocaBum99 said:

The easiest thing to do from the Bluegreen side is to add the DRI resorts to Select Connections, create a point value for DRI resorts and charge an extra fee for access into these resorts. If they did this, the Bluegreen program could stay essentially in tact and the extra value will be considerable to customers.

Not sure what they would do on the Sunterra side, but there may be a similar mechanism. The reason why something like that would be a good way to start is that it leaves the teams essentially in place to deliver revenue and reservations. If you change anything too much, there are deeds that need to be redone and reservation systems that need to be rebuilt. That takes time, money and precise execution. Hard to do in a short time frame.

By doing the above, it gives DRI the chance to build an infrastructure consolidation plan over time to reduce operating costs.

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Given what they did with Sunterra resorts as well as the additional ones acquired since then, and the fact that they now have everything, including Polo Towers, in one system (THE Club) it would surprise me if they did not just bring these locations into the same system. They apparenty don't need much time to build a consolidation plan as they have already implemented one in a very short time, including a completely revamped reservation and web system. They probably envisioned future growth when they did those.

It's easy to add standalone resorts to a resort system. Bluegreen does it all the time. They recently added Club 36, Atlantic Palace, Long Creek Ranch. Very easy when the rules are the same. What's more difficult is when 2 point systems merge. There are different reservation rules that a system could not have possibly envisioned a priori.

When a point system adds a new resort into the system that wasn't there before, they just create a point value and use all the same reservation rules. The problem witih Bluegreen is that they already are in a system with their own reservation rules. So, to change that would be very difficult. To merge them would be next to impossible short term.

DRI could easily add all Bluegreen resorts into their system immediately. But then there would be NO inventory since the inventory is legally committed to another reservation system. There would have to be a conversion process that offers Bluegreen owners the ability to trade in their ownerships for a replacement ownership in the Club. That is a LONG and tedious process.

Now, all of the new resorts can be added only to DRI in Bluegreen. That would effectively put a cap on the Bluegreen Vacation Club. But then, they can't sell Bluegreen any longer. They could do it, but it would probably result in less sales than selling both systems with addons from the other.

One of the huge pressures that the CEO of DRI will experience is from the financiers of the deal. DRI had to acquire Sunterra for $750M. Where is the cash flow coming from to pay down that debt? Add on $500M from a Bluegreen acquisition, then the investors may have some pretty tough financial debt convenances that I personally wouldn't have the stomach for. Been there, done that = no more investors for me. So, no matter what DRI wants to do, they will be limited by what their investors want to do. One of the convenances will definitely be on quarterly sales. No matter how much they want to merge the Clubs, they will want to make sure they can hit the revenue targets at all cost or trigger debt covenances. Given the state of the capital markets, not sure how much private stock would be worth today. We'll have to see if DRI can come up with the bucks. That's one of the key traits of a big business person. If he pulls it off, I will be absolutely impressed.

The precendent for keeping the clubs separate but with some sharing would be Cendant. They have worldmark and wyndham, which are separate, and both continue sales, yet both have a side benefit of access to additional inventory. This seems like the only practical solution to me as well.

Michael

BocaBum99 said:

DRI could easily add all Bluegreen resorts into their system immediately. But then there would be NO inventory since the inventory is legally committed to another reservation system. There would have to be a conversion process that offers Bluegreen owners the ability to trade in their ownerships for a replacement ownership in the Club. That is a LONG and tedious process..

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Not necessarily. They could take the time they control (unsold inventory) and put it in THE CLUB - replace it with THE CLUB inventory. Then as reservations are made from CLUB to BG or the other way around the inventory hopefully grows for each side each year.

Would they do that? If they are smart they would as two separate operations aren't efficient and leads to owners on one side or the other being unhappy- or both. Sunterra already had that situation once and look how they ended up. The value is a single, large, integrated system. More likely? Trying to rape both sides with "upgrade" fees to get access. If that's the case I have no interest in any move they may make as I never plan on spending another cent on "upgrade" purchases within any of my systems.

timeos2 said:

Not necessarily. They could take the time they control (unsold inventory) and put it in THE CLUB - replace it with THE CLUB inventory. Then as reservations are made from CLUB to BG or the other way around the inventory hopefully grows for each side each year.

Would they do that? If they are smart they would as two separate operations aren't efficient and leads to owners on one side or the other being unhappy- or both. Sunterra already had that situation once and look how they ended up. The value is a single, large, integrated system. More likely? Trying to rape both sides with "upgrade" fees to get access. If that's the case I have no interest in any move they may make as I never plan on spending another cent on "upgrade" purchases within any of my systems.

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If they did that, then The Club would have access to about 10 resorts in Bluegreen since that is all they are selling new inventory at today. And, I doubt they would make enough revenue by shutting down the 30 plus Bluegreen sales centers.

It's easier for a resort to be available to multiple systems (e.g. Pono Kai), then to make all resorts available to only one system (i.e. shutting down the rest).

You'll see, they won't have a choice. In you were CEO, you'd come to the conclusion that you don't have a choice.

BocaBum99 said:

You'll see, they won't have a choice. In you were CEO, you'd come to the conclusion that you don't have a choice.

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If that is the case then they shouldn't bother. If it can't be made one it should be a pass.

We own weeks at Pono Kai, which has been managed by Bluegreen. What will happen here?

Bocca,

Never underestimate the will of DRI's CEO Stephen Cloobeck. If he decides he wants it all as one club, it will end up as one club. At the moment he hasn't telegraphed his intentions for combining the two programs so it's hard to say what will be done. The one thing I wouldn't do right now is to attempt to reason out what would or should be the best way to do things. Mr. Cloobeck moves fast when he knows what he wants to do and everyone had better be ready to move with him. I think the speed with which he's refashioned Sunterra has surprised more than a few people.

Right now all us owners can do is wait and see which way this thing moves. We can speculate all we want and you could very well be correct about things remaining two seperate systems that interchange with each other. Then again, he may want to convert all weeks to one points based system for simplicity and ease of management. If I were a betting man, I think I'd be leaning towards the one system rather than two. But then again I wouldn't put money on it either way.

timeos2 said:

If that is the case then they shouldn't bother. If it can't be made one it should be a pass.

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You obviously don't have much experience with mergers and acquisitions. There are lots of reasons why companies get bought out. And, merging two products into one isn't usually even the most important one.

BocaBum99 said:

You obviously don't have much experience with mergers and acquisitions. There are lots of reasons why companies get bought out. And, merging two products into one isn't usually even the most important one.

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Not talking about it from the Diamond viewpoint but as an owner. Worthless if they don't make it one seamless system. As Doug also speculates from the small amount I've seen of Mr Clobeck's approach it would be one system. Period. It's the only way it makes sense.

timeos2 said:

Not talking about it from the Diamond viewpoint but as an owner. Worthless if they don't make it one seamless system. As Doug also speculates from the small amount I've seen of Mr Clobeck's approach it would be one system. Period. It's the only way it makes sense.

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I don't agree. From a Bluegreen owner perspective, seamless would only make sense if Diamond adopted the Bluegreen reservation rules and added DRI resorts to it. I believe DRI owners would probably feel the same way.

I would much rather have 2 systems than be forced into another one.

Sure, the DRI CEO can have ambitions to do lots of things. The law and investors usually put some constraints on those ambitions. Implementation realities usually provides the rest. What I am trying to do is to give you some boundaries around which he will have to navigate.

Taking a one resort system and then merging that one resort into a resort group and renaming it isn't difficult at all. Even I believe I could do that.

Merging two systems overnight that have hundreds of thousands of customers who very well defined rules for operating, would be a miracle. If he can pull it off, he can also walk on water. That's the level of difficulty of the challenge.

Sure, a foolish CEO could say, okay, put all of the Bluegreen inventory into the Sunterra reservation system by Jan 1 and send out an email to all 180,000 Bluegreen owners on the new rules and method for getting a reservation. See what happens to the customer support hotline. See how many sales are made at owner updates vs. how many are there purely to complain about the overnight changes. Then, see CEO moonwalk in a way that would knock Michael Jackson's socks off.

There a lots of things an ambitious CEO can do. One could even try to do what some are suggesting in terms of merging the Clubs right away. After one day of 200,000 customer service calls and the idea would be reversed.

After all, even King David himself couldn't acquire little ol' Bluegreen.

BocaBum99 said:

You obviously don't have much experience with mergers and acquisitions. There are lots of reasons why companies get bought out. And, merging two products into one isn't usually even the most important one.

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I obviously don't know what will happen, but I do have considerable experience in the business world involving acquisitions, in both 'acquiring' as well as 'acquired' organizations. I can tell you that the acquiring (buying) organization generally makes the rules, subject only to whatever is contained in the acquisition agreement between the parties. Such and acquisition is exactly why I am an 'early retiree' today. Once the agreement is signed, the organization being acquired has no negotiating position at all and neither do it's members.

All that said, I certainly am not an expert in the legalities of timeshare organization acquisitions. It will be interesting to see.

Taking Over What ?

If some particular BlueGreen timeshare is sold out, what it is it excactly that Diamond Timeshare Co. gets at that timeshare when it buys out BlueGreen ?

I mean, all the weeks & all the units at the sold-out timeshare are owned by regular walking-around people, with none remaining for the timeshare company to sell. So what's left there for some big timeshare company to take over via merger & acquisition & buyout ?

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

DRI , fortunately, is in business to make money. Consequently, DRI must have had an idea for what happens after the acquisition before they signed the letter of intent. It is likely to be a good deal for all members because that is what makes good business sense. There is a great deal of competition in the timeshare industry and they will not be in business long if they are simply interested in creating problems for their members.

Mimi said:

We own weeks at Pono Kai, which has been managed by Bluegreen. What will happen here?

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Not much. The management company will now be called Diamond. You may get owner update to sell you the point system with now many more attractive place(s) and ask you to convert it.

But that will be it.

Jya-Ning

fnewman said:

I obviously don't know what will happen, but I do have considerable experience in the business world involving acquisitions, in both 'acquiring' as well as 'acquired' organizations. I can tell you that the acquiring (buying) organization generally makes the rules, subject only to whatever is contained in the acquisition agreement between the parties. Such and acquisition is exactly why I am an 'early retiree' today. Once the agreement is signed, the organization being acquired has no negotiating position at all and neither do it's members.

All that said, I certainly am not an expert in the legalities of timeshare organization acquisitions. It will be interesting to see.

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I completely agree that DRI will be calling the shots. And, they will do their best to merge operations as much as possible to keep a low cost structure while pursuing the CEOs vision for the going forward company. All I am saying is there are significant barriers to merging operations and a significant one is that the Bluegreen Vacation Club is already owned by over 180,000 owners who have a product that is registered with the State of Florida. In addition, there is a practical limit to the changes that can be made to 180,000 owners at one time. For instance, nothing can be done that will encourage all 180,000 to call a toll free number to say, "what is going on?"

I, too, have considerable operating experience in mergers and acquisitions in top management positions. So, I have been acquired and I've been the acquiror. And, I've worked on several transition teams to build operational plans for the going forward organizations. It is not easy, but it can be fun. I agree, it will be interesting to see what happens.

One of the things I don't subscribe to are conspiracy theories on what acquirors plan to do with acquirees. There is usually a solid theory for what is expected out of a merger. Where it usually falls down is in execution of the new operating plan. Cultures clash and unwise business assumptions are made. As soon as we learn the strategic intent of what DRI will have for Bluegreen, the implications, challenges and actions will be pretty obvious. I can't wait to find out.

So I am confused a bit - if Bluegreen is essentially 'member-owned' then what does the 'corporation' and what does it really have to sell to DRI?

fnewman said:

So I am confused a bit - if Bluegreen is essentially 'member-owned' then what does the 'corporation' and what does it really have to sell to DRI?

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Bluegreen Corporation (NYSE: BXG) is a publicly traded Resort and Residential Community Builder and Management company. Their primary source of income is the development and sales of timeshare resort products and single family homes.

The Bluegreen Vacation Club is a separate corporation that is a multi-site timesharing plan that operates under Florida Statutes. Bluegreen Corporation has a management arm that manages and operates Resorts for a fee and runs the Bluegreen Vacation Club reservation system. The Bluegreen Vacation Club has its own board of directors. Bluegreen Corporation controls the board of the Bluegreen Vacation Club. Bluegreen also owns a title company (Resort Title Agency) and a resale company (Pinnacle Vacations).

What Bluegreen brings to the table is a core competence in picking, development or renovating, managing and operating timeshare resorts. They are quite good at it. What DRI gets are all current timeshare development projects and the management contract for the Bluegreen Vacation Club. To the extent Bluegreen manages and/or develops projects better than DRI, they get additional skills that they can supplement their own team with. In addition, it gives them a product portfolio that they can combine with their own in the sales process. They also have exclusive access to the Bluegreen Vacation Club customer base which produces about 40% of all revenue for the timesharing divison of Bluegreen. This is a tremendous asset for selling additional product over time.

Bluegreen has about 30 or so sales centers that makes about 100 new sales per day or 35,000 per year. That is a finely tuned machine.

What The Wyndham Timeshare Seller Told Us About BlueGreen.

BocaBum99 said:

What Bluegreen brings to the table is a core competence in picking, development or renovating, managing and operating timeshare resorts.

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A Wyndham timeshare seller in Florida told us BlueGreen specializes in taking over troubled timeshare resorts & turning'm around, citing as examples Resort At Golf World Village near St. Augustine FL & The Fountains in Orlando FL & Shenandoah Crossing in Gordonsville VA.

BocaBum99 said:

Bluegreen has about 30 or so sales centers that makes about 100 new sales per day or 35,000 per year.

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That's why they're going to need those new 18-wheelers to haul all that money down to the bank.

-- Alan Cole, McLean (Fairfax County), Virginia, USA.​

DRI has almost certainly designed a product that will require 180,000 BXG owners to buy an upgrade to access DRI resorts and vice versa (DRI owners have to buy another upgrade to access BXG resorts). That combined with the existing BXG sales machine will provide revenue to pay back the cost of this acquisition. Whether BXG owners think it's good for them is hardly a concern of DRI management, one can surmise.

I just wonder how DRI will finance this transaction. I am assuming that shareholders in BXG will want cash, especially since DRI is a private company and structured as an LLC.

So, assuming that this transaction is financed with debt, $500M acquisition with a very conservative note of 12% would cost $60M per year in debt service with some very stringent debt convenances. That's $15M per quarter.

Today, Bluegreen announced earnings. It only produced $3.4M in quarterly earnings. Just to service debt, DRI will have to prove immediate synergies that will significantly flow to the bottom line. That's a very tall order.

I think Bluegreen already has about $400M+ in debt. So, it's not like DRI can raid an over funded pension fund or secure debt against current assets of Bluegreen. I'd love to see the investor pitch on this deal. Talk about pulling a rabbit out of the hat.