Investor Urges ClubCorp to Sell in Wake of Stock Depreciation

One of the largest shareholders of Dallasbased ClubCorp has urged executives to explore a strategic sale of the company ClubCorp owns recreational properties across 26 states and Mexico including the Bluegrass Yacht amp Country Club in Hendersonville Tennessee Photo courtesy of ClubCorp

One of the largest shareholders of Dallas-based ClubCorp has urged executives to explore a strategic sale of the company. ClubCorp owns recreational properties across 26 states and Mexico, including the Bluegrass Yacht & Country Club in Hendersonville, Tennessee. (Photo courtesy of ClubCorp.)

In order to curb tumbling stock prices, one of the largest shareholders of Dallas-based ClubCorp, owner of numerous recreational clubs across the country, has urged executives to explore a strategic sale of the company.

Connecticut-based FrontFour Capital issued a letter to ClubCorp CEO Eric Affeldt last Thursday, in which the advisory investment firm expressed concern about ClubCorp’s depreciating shareholder value. In the last year, according to the letter, the company’s stock has declined approximately 40 percent, with FrontFour owning 3.4 percent of ClubCorp’s outstanding shares.

FrontFour’s portfolio managers criticized ClubCorp’s “bolt-on acquisition strategy” of investing in small, private clubs, such as the Heritage Golf Club in Hilliard, Ohio. They also said the stock downturn “has been largely self-inflicted and stems partially from poor communication with investors.”

The letter states: “We believe the status quo is untenable and we fear that without more aggressive action from the Board of Directors (the ‘Board’) to unlock shareholder value, the current discount to intrinsic value will persist indefinitely.”

The letter from FrontFour said that ClubCorp’s stock should trade at $27 per share, as compared to its $23 yearlong high and its recent $14 closing price.

“ClubCorp trades at a significant discount of nearly [three times] to the broader leisure space, which encompasses peers including theme park operators, a large ski resort operator and a Japanese golf club operator,” the managers said, specifically contrasting ClubCorp with Vail Resorts, Six Flags Entertainment and SeaWorld Entertainment, among others. “These comparable companies have similar seasonality, capital intensity and free cash flow characteristics when compared to ClubCorp.”

According to The Dallas Morning News, buzz surrounding FrontFour’s letter prompted a $1.80 spike in ClubCorp’s stock. On Sept. 15, it closed at $15.47, a nearly 7 percent increase.

“Our board and management continuously seek to provide long-term shareholder value and appreciate feedback from our investors,” Affeldt said in a brief statement published the same day in The Dallas Morning News. “We continue to believe in the merits of our business model and strategies and value the opinions of our shareholders.”

ClubCorp ranked No. 4 on Club Industry’s Top 100 Health Clubs of 2016, just behind Life Time Fitness, 24 Hour Fitness and LA Fitness. The company also reported a record revenue of $1.1 billion in 2015. The company was founded in 1957 and owns golf and country clubs (many with a fitness center component) in 26 states as well as Mexico. It employs 18,000 people and serves 183,000 members.

Last week, it was announced Affeldt will be inducted into the Hospitality Industry Hall of Honor at the University of Houston Conrad N. Hilton College of Hotel and Restaurant. The hall “recognizes industry leaders who have made extraordinary contributions to American and international business and society.” Notable names among the other 67 inductees include Walt Disney, J.W. Marriott and Conrad N. Hilton.

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