UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
SCHEDULE 14D-9
(AMENDMENT NO. 3)
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
SUNTERRA CORPORATION
(Name of Subject Company)
SUNTERRA CORPORATION
(Names of Person Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
86787D208
(CUSIP Number of Class of Securities)
FREDERICK C. BAUMAN
SUNTERRA CORPORATION
3865 W. CHEYENNE AVE.
NORTH LAS VEGAS, NEVADA 89032
TELEPHONE: (702) 804-8600
(Name, address and telephone number of person
authorized to receive notice and communications on behalf of the person(s)
filing statement)
WITH COPIES TO:
D. GILBERT FRIEDLANDER, ESQ.
MICHAEL A. SASLAW, ESQ.
WEIL, GOTSHAL & MANGES LLP
200 CRESCENT COURT
SUITE 300
DALLAS, TEXAS 75201
TELEPHONE: (214) 746-7700
[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer:
This Amendment No. 3 (this "Amendment") amends and supplements the
Solicitation/Recommendation Statement on Schedule 14D-9 filed on March 16, 2007,
as amended by Amendment No.1 on March 20, 2007 and Amendment No. 2 on March 22,
2007 (as so amended, the "Schedule 14D-9"), by Sunterra Corporation, a Maryland
corporation ("Sunterra" or the "Company"). Except as specifically provided
herein, this Amendment does not modify any of the information previously
reported on the Schedule 14D-9.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Item 4 is hereby amended to amend and restate, as set forth below, the
disclosure set forth under the caption " - North American Business Valuation
Analyses - Analysis of Selected Comparable Publicly Traded Companies" and under
the caption "- North American Business Valuation Analyses - Analysis of Selected
Comparable Acquisitions", each in the section entitled "Opinion of Sunterra's
Financial Advisors - Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated", in each case to add certain additional information. These amended
and restated disclosures are being made pursuant to an agreement in principle to
resolve the actions entitled Caruso v. Sunterra Corp., et al., Case No. A537559
and Saullo v. Benson, et al., Case No. A525433, each filed in the Eighth
Judicial District Court for the State of Nevada in and for the County of Clark
and described in Item 8 of the Schedule 14D-9, and so as to provide additional
information to its stockholders. Sunterra has reached a settlement-in-principle
with the plaintiffs in those actions pursuant to which it was agreed that the
following amended and restated disclosures would be made. The settlement is
subject to Court approval. As part of the settlement, plaintiffs will be
permitted to apply to the court for an award of attorney's fees and costs not to
exceed $489,000, and an incentive award for Saullo, not to exceed $10,000, for
his efforts in connection with the action. The Court, however, will determine
what amounts shall be paid as part of the settlement, and neither the
effectiveness and approval of the settlement, nor the Offer and Merger, are
conditioned upon any award, in any amount, to plaintiff or his counsel.
North American Business Valuation Analyses
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information, Merrill Lynch compared financial and operating
information and ratios for the Company's North American business with the
corresponding information for a selected group of publicly traded companies.
Merrill Lynch selected these companies because they engage in businesses and
have operating profiles reasonably similar to those of the Company's North
American business. The selected companies were:
o Bluegreen Corporation;
o Silverleaf Resorts; and
o ILX Resorts.
Merrill Lynch calculated an equity value for each of these companies based
on their respective closing share prices as of March 8, 2007 and the number of
shares, options and convertible securities outstanding as reflected in publicly
available information. Using these equity values, Merrill Lynch calculated an
enterprise value for each company by adding to these equity values the amount of
each company's net debt as reflected in its most recent publicly available
balance sheet.
Using estimates of earnings before interest, taxes, depreciation and
amortization, or EBITDA, and earnings per share, or EPS, for each of these
companies derived from estimates published by selected Wall Street research
analysts, Merrill Lynch calculated the following multiples for each company:
o Transaction or enterprise value as a multiple of EBITDA based on o
fiscal 2006 and fiscal 2007 estimated EBITDA and enterprise values
calculated as described above;
o Price/earnings, or P/E multiples based on fiscal 2006 and fiscal
2007 estimated EPS and the closing share price as of March 8, 2007;
and
o Book value multiples based on equity value as described above.
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The following table summarizes Merrill Lynch's analyses:
RELATED PUBLIC TRADING COMPARABLES - TIMESHARE
---------------------------------------------------------------------------------------------------------------
Equity Value/
---------------- Net P/E Proj.
52-Wk Equity Gross Tangible Total Debt TEV/EBITDA Multiple(2) EPS
Price ---------------------- Market Book Book Enterprise +Pref/ ------------ ------------ Growth
Company Ticker 3/8/2007 % High High Low Cap(1) Value Value Value(1) TEV 2006E 2007E 2006E 2007E Rate(2)
- ------------ ------ -------- ------ ------ ------ ----- ----- -------- ---------- ------ ----- ----- ----- ----- ------
Timeshare
Sunterra SNRR 11.85 79.2% 14.96 6.86 239 1.39x 2.60x 587 59.3% 8.5x 7.3x 15.2x 11.3x 15.0%
- ------------ ------ -------- ------ ------ ------ ----- ----- ----- ---------- ------ ----- ----- ----- ----- -----
Bluegreen BXG 11.48 73.8% 15.55 10.84 358 1.03x 1.05x 616 39.7% 5.7x 5.2x 8.0x 7.3x 15.0%
Corporation
- ------------ ------ -------- ------ ------ ------ ----- ----- ----- ---------- ------ ----- ----- ----- ----- -----
Silverleaf SVL 4.56 89.6% 5.09 3.00 181 1.26x 1.26x 465 61.0% 7.9x 7.2x 8.3x 7.2x NA
Resorts
- ------------ ------ -------- ------ ------ ------ ----- ----- ----- ---------- ------ ----- ----- ----- ----- -----
ILX Resorts ILX 9.36 88.3% 10.60 8.99 33 0.86x 0.86x 68 48.6% NA NA NA NA NA
- ------------ ------ -------- ------ ------ ------ ----- ----- ----- ---------- ------ ----- ----- ----- ----- -----
Mean 82.7% $11.55 $7.42 $203 1.14x 1.44x $434 52.1% 7.4x 6.6x 10.5x 8.6x 15.0%
Median 83.8% $12.78 $7.93 $210 1.14x 1.15x $526 53.9% 7.9x 6.2x 8.3x 7.3x 15.0%
Timeshare Embedded Within
Other Comparables
Wyndham - Timeshare (3)
Starwood Hotels & Resort - $2,274-$2,923 7.0x-9.0x
Timeshare(3)
$2,120 8.0x
- -------------------------
Note: Dollar amounts in USD millions except per share amounts. Actual financials
are based on latest public filings, pro forma for applicable subsequent
events. Estimated financials based on latest available Wall Street
research reports. Calendarized to December 31 year end.
(1) For market capitalization purposes, fully diluted shares include shares,
units, options using the treasury stock method and any convertible
securities. Total enterprise value defined as Equity Capitalization + Net
Debt + Preferred Stock + Minority Interest.
(2) Based on I/B/E/S Consensus estimates as of February 22, 2007.
Source: Selected Wall Street research analysts.
Merrill Lynch compared the maximum, mean, median and minimum implied
multiples it calculated for the comparable companies to the implied multiples it
calculated for the Company. The results of Merrill Lynch's comparison are
reflected in the following table:
EQUITY EQUITY
VALUE/ VALUE/
GROSS TANGIBLE FY 2006 FY 2007 FY 2006 FY 2007
BOOK BOOK EBITDA EBITDA P/E P/E
VALUE VALUE MULTIPLE MULTIPLE MULTIPLE MULTIPLE
-------- -------- -------- -------- -------- --------
1.39x 2.60x 8.5x 7.3x 15.2x 11.3x
Maximum
Mean 1.14x 1.44x 7.4x 6.6x 10.5x 8.6x
Median 1.14x 1.15x 7.9x 6.2x 8.3x 7.3x
Minimum 0.86x 0.86x 5.7x 5.2x 8.0x 7.2x
Company 1.39x 2.60x 8.5x 7.3x 15.2x 11.3x
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Based on the foregoing and Merrill Lynch's analyses of the various
comparable companies and on qualitative judgments involving non-mathematical
considerations, Merrill Lynch applied multiples ranging from 7.0x to 8.0x to the
Company management's estimates of fiscal 2007 EBITDA for the Company's North
American business as adjusted for restructuring, investigation and other
one-time charges (which we refer to herein as fiscal 2007 Adjusted EBITDA) and
calculated implied per share values for the Company's North American business
ranging from $7.40 to $10.90 based on the fiscal 2007 Adjusted EBITDA estimate
derived from the management projections.
None of the selected comparable companies is identical to the Company's
North American business. Accordingly, a complete analysis of the results of the
foregoing calculations cannot be limited to a quantitative review of the results
and involves complex considerations and judgments concerning differences in
financial and operating characteristics of the selected comparable companies and
other factors that could affect the public trading dynamics of the selected
comparable companies, as well as those of the Company.
Analysis of Selected Comparable Acquisitions. Using publicly available
information, Merrill Lynch calculated transaction value as a multiple of EBITDA,
and as a multiple of revenue and EPS, for certain transactions that it deemed
comparable to the proposed transaction. The following table summarizes Merrill
Lynch's analysis:
- --------------------------------------------------------------------------------------------------------------------------------
VALUATION OF SUNTERRA CORPORATION
Transaction Comparables - Timeshare
(Dollars in Millions)
Transaction Transaction
Value/ Value/ Offer Price/
----------------- ---------------- --------------
Announcement Offer Transaction LTM Forward LTM Forward LTM Forward
Date Acquiror Target Value Value Revenue Revenue EBITDA EBITDA EPS EPS
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
04/01/02 Cendant Trendwest Resorts $937 $1,024 2.2x NA 10.9x NA 16.8x 13.7x
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
12/17/01 Cendant Equivest Finance 86 333 2.6x NA 8.1x NA 10.5x NA
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
11/02/00 Cendant Fairfield Communities 735 823 1.5x 1.2x 7.0x 5.8x 11.1x 10.7x
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
11/17/99 Equivest Finance Peppertree Resorts 35 112 1.6x NA NA NA NA NA
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
07/19/99 Starwood Hotels & Vistana 416 664 2.4x 1.9x 10.9x 7.3x 17.3x 15.5x
Resorts
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
07/17/98 Equivest Finance Eastern Resorts 30 58 2.5x NA NA NA NA NA
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
08/18/97 Vistana Success Development 36 36 3.8x NA 230.6x (1) NA NA NA
Group
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
08/11/97 Fairfield Vacation Break USA 113 174 1.7x 1.3x 9.9x 6.1x 12.5x 10.5x
Communities
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
06/15/97 Signature Resorts LSI Group Holdings 49 50 1.9x NA 9.0x NA NA NA
(Sunterra)
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
05/15/97 Signature Resorts Plantation Resort 59 118 2.6x NA 9.1x NA NA NA
(Sunterra) Group
- --------------- --------------------- ---------------------- ------ ----------- -------- -------- ------- -------- ----- --------
09/23/96 Signature Resorts AVCOM International 32 101 2.7x NA 47.0x (1) NA NA NA
(Sunterra)
Mean 2.3x 1.5x 9.3x 6.4x 13.6x 12.6x
Median 2.4x 1.3x 9.1x 6.1x 12.5x 12.2x
- ------------------------------------------------------------------------------
(1) Excluded from mean and median.
Merrill Lynch calculated the transaction value for each transaction by
multiplying the amount of the announced per share consideration paid or payable
in each transaction by the number of fully diluted outstanding shares of the
target company based upon publicly available information and adding to the
result the amount of the company's net debt as of the date of the target
company's most recent balance sheet prior to announcement of the transaction.
Although Merrill Lynch calculated transaction value as a multiple of
revenue and EPS, Merrill Lynch focused upon transaction value as a multiple of
EBITDA as Merrill Lynch believed this was the most relevant metric for purposes
of its comparable transactions analysis. For each of the transactions, Merrill
Lynch calculated the transaction value as a multiple of EBITDA for the most
recently reported 12 months prior to the date of announcement of the
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transaction, which we refer to as the LTM EBITDA Multiple and calculated the
transaction value as a multiple of EBITDA one year forward for those
transactions for which forecasted one year forward EBITDA was available, which
we refer to as the Forward EBITDA Multiple. The average LTM EBITDA Multiple for
all the transactions, excluding certain transactions which Merrill Lynch
determined should be excluded from this calculation due to disparities in the
LTM EBITDA multiples for those transactions, was 9.3x and the average Forward
EBITDA Multiple based on the transactions for which information was available,
was 6.4x.
Based on the foregoing and Merrill Lynch's analyses of the various
transactions and on qualitative judgments involving non-mathematical
considerations, Merrill Lynch applied multiples ranging from 7.0x to 9.0x to the
Company managements' estimate of the fiscal 2007 Adjusted EBITDA for the
Company's North American business to derive a range of implied enterprise values
for the Company's North American business. Merrill Lynch derived ranges of
implied equity values for the Company's North American business by deducting
from the implied enterprise values the amount of the net debt of the Company's
North American business as of December 31, 2006 as provided by the Company's
management. Using the implied equity values and numbers of outstanding shares,
options, warrants and convertible securities of the Company as provided by the
Company's management, Merrill Lynch calculated implied per share values for the
Company's North American business ranging from $7.40 to $14.50.
None of the transactions analyzed by Merrill Lynch is identical to the
proposed transaction. Accordingly, a complete analysis of the results of the
foregoing calculations cannot be limited to a quantitative review of the results
and involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies party to those
transactions as well as the transactions and other factors that could affect the
transactions and the proposed Offer and Merger.
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I hereby
certify as of April 18, 2007 that the information set forth in this statement is
true, complete and correct.
SUNTERRA CORPORATION
By: /s/ Frederick C. Bauman
-----------------------------
Name: Frederick C. Bauman
Title: Vice President, General Counsel and
Secretary
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