Canadian Pacific Buys Fairmont In Contract Exchange

<B> Canadian Pacific Buys Fairmont In Contract Exchange</B>

By Maria P. Vallejo

<I>Toronto</I> - There was a soft murmur of consolidation activity in the hospitality industry last week with the announcement of Canadian Pacific's midyear plan to acquire Fairmont Hotels Management.

This is the third acquisition by Canadian Pacific in the past year. It bought Delta Hotels in the second quarter of 1998 and Princess Resorts last August. The Delta Hotels will be unaffected by the deal, while some Princess resorts will be reflagged.

Canadian Pacific's acquisition of Fairmont will create a new company to be called Fairmont Hotels & Resorts Inc., with a combined portfolio of 35 properties in North America, and leave the company poised for further global expansion.

For customers, "some new programs will come out in the fall," said Ed Mace, who will become president and CEO of Fairmont Hotels & Resorts in the United States and Mexico. "Part of the reasons for combining the companies like this is to offer a wider range of choices and programs."

The companies are planning to solicit the opinions and recommendations of travel buyers on how to combine the two frequent guest programs, but they already have a reflagging plan. Fairmont's seven hotels in the United States will retain their name, while the Canadian Pacific properties in the Caribbean and Mexico will be reflagged as Fairmonts. All hotels in Canada will retain the Canadian Pacific name.

"After the combination of these two companies is completed, we will have a position in the Mexican market with Acapulco and we will see further expansion into Mexican markets," according to Mace. "With the Central and South American markets, we could see some growth."

"One of the reasons we acquired Fairmont was that it is a vehicle for growth," said Canadian Pacific spokeperson Ann Layton. "For many years, our job was to regroup and restore our Canadian hotels, and we spent C$780 million (US$526 million) as a platform for growth. I think we're pretty well open for anything."

Canadian Pacific's chairman and chief executive officer Bill Fatt will retain his position in the new managment company. Its headquarters will remain in Toronto, while the American and Mexican division will move to San Francisco, headed by Mace.

The deal was based on an exchange of hotel management contracts rather than cash. Canadian Pacific now holds a 67 percent controlling interest in Fairmont Hotels & Resorts. The combined companies' revenue management fees are expected to be $45 million, $30 million from Canadian Pacific and $15 million from Fairmont, Layton said.