By Jeff Weir
Chief Correspondent for RedWeek.com
This is the first of what may be several columns on the changes afoot at Diamond Resorts International, which was just bought out by a huge Wall Street investment firm, Apollo Global Management, for $2.2 billion.& The merger’s effect on owners is to-be-determined, which is why we are going to report on the Diamond Chronicles.
Here is the Back Story
Throughout 2016, Diamond has made a lot of headlines, including a very damaging one on Jan. 22, when the New York Times (following articles published by RedWeek.com, TimeSharing Today and other organizations) published a critical news story about Diamond’s alleged use of high-pressure sales tactics to sign up new or repeat buyers
Predictably, Diamond executives denounced the article. Diamond investors didn’t like it either, as reflected by alarge dip in stock price
To stop the bleeding on Wall Street, Diamond issued a letter to investors Jan. 25 that said, in part, that the New York Times article “does not accurately reflect who we are as a company nor how we operate our business.” Diamond did not challenge any specifics in the article or demand a correction or retraction.
The second big thing that made Diamond newsworthy, all year long, was its overall stock performance, which had floated far below its timeshare competitors for many months. So on Feb. 24, while under public pressure from major investors for stronger returns, Diamond’s board of directors announced that it had created a board-level committee to explore all “strategic alternatives” to maximize shareholder value. That announcement, in effect, meant that Diamond was putting itself up for sale — and Wall Street loved it, pushing Diamond’s stock up from $19.11 per share on Feb. 24 to $23.21 per share on Feb. 25. Four months later, on June 29,Apollo announced that it would buy Diamond for $30.25 per share. That offer amounted to a 26% premium over Diamond’s then-current share price. The merger was consummated Sept. 2. That’s the day that Diamond went dark, transformed from a public company that files quarterly results to investors, to one that is under no obligation to report anything publicly about its business.
But this is not a story about Wall Street. It’s about Diamond.
How Do Timeshare Owners Fit into the Apollo-Diamond Merger?
After months of hearing nothing from Diamond about the merger, Diamond timeshare owners got two very friendly Labor Day Weekend emails from the “stay vacationed” company, on Friday, Sept. 2.
The first came from David F. Palmer, Diamond’s president and CEO.
Thirty minutes later, the second arrived from Stephen J. Cloobeck, Diamond’s founder, chairman and former CEO (until Palmer succeeded him in January 2013).
The dual messages announced that “an affiliate of funds managed by affiliates of Apollo Global Management, LLC” had completed its acquisition of Diamond Resorts International for $2.2 billion. That’s right, they said it: “affiliates of… affiliates” bought Diamond.
Cloobeck, the man who peddled “the Meaning of Yes” as a timeshare theme in all of his corporate messaging, said he was “thrilled” by the buyout. Palmer was a bit more restrained, saying he was “pleased.”
No surprise. In reality, they should be ecstatic, because Cloobeck and Palmer are the two biggest beneficiaries of Apollo’s purchase of Diamond’s stock.
According to an Aug. 5 New York Times story that was based on public Securities Exchange Commission stock filings, the Apollo buyout was worth $384 million for Cloobeck’s shares and $173 million for Palmer’s. Not bad for one day at the timeshare office.
They weren’t the only big winners. Thirteen other Diamond executives and directors (all major shareholders) stood to share $67 million, according to the SEC filing and the Times story.
So if you’re a Diamond timeshare owner, what does all this seemingly obscene profiteering by corporate executives mean to you? Maybe not much. In his email, Palmer assured all Diamond owners that “this transaction will not impact your membership or ownership and you will continue to enjoy all of the benefits you have come to expect.”
Cloobeck, as is his wont, was much more exuberant. He celebrated Diamond’s sale as a personal victory.
“I am confident that the new owners will be excellent stewards of my legacy,” Cloobeck wrote in an email to owners. “I am also pleased to announce that Apollo offered me a special position to assist them as an advisor, leveraging my expertise in the hospitality sector.”
So, while he counts his millions, Cloobeck also plans to hang around, advising the company on how to make even more money. In an odd way, it’s fitting, because Cloobeck’s over-the-top personality has set the tone for Diamond since it bought out Sunterra’s timeshare assets in 2007.
Whenever I Think of Diamond, I See Cloobeck
Back in 2012, Cloobeck participated in a couple episodes of Undercover Boss, the semi-popular CBS-TV show about executives who masquerade as regular employees in order to find out what is “really going on” at their companies.
Cloobeck’s appearance on the semi-reality show was notable because he managed to turn his episodes into an unintended comedy, disguising himself in an ill-fitting wig, baseball hat and glasses while posing as a not-too-smart handyman. Since a camera man and sound person followed him around various resorts while the episodes were filmed, it’s unlikely that Diamond employees had much doubt about who the guy-in-the-wig was. Still, when the episodes ended, he graciously thanked the employees who put up with his phony handyman and gave them hugs and lots of money. (See what RedWeek members have to say about the episode here
Rank-and-file Diamond employees already knew who he was, of course, because during his reign as CEO Cloobeck made himself a ubiquitous presence at Diamond resorts. According to staff, he had a habit of popping in, unannounced, at various resorts to see what employees were doing. For several years, he and his marketing team also liked to feature videos of Cloobeck, talking about how wonderful “the Meaning of Yes” was to Diamond owners, on continuous-loop, large-screen TVs mounted on the lobby walls at Diamond resorts. At check in, you could not escape him. In the TV video, he looked every part the timeshare salesman that he is: expensive coat, pressed jeans, white open collar shirt, gold chains, big watch, vivid tan, brilliant white teeth, perfect pompadour, all topped by a tone of self-satisfaction as Cloobeck held forth from a spectacular beach resort (fancier than anything Diamond owns, FYI). Those videos disappeared, overnight, when Cloobeck was replaced as CEO by Palmer, his longtime executive running mate at Diamond resorts.
From a branding standpoint, the marketing video wasn’t a bad idea. But just like the Undercover Boss episodes, the video seemed to reveal more about Cloobeck than the average timeshare guest might want to know about him (which is, that he’s proud of being rich and happy to share his wonderful life with mere humble timeshare owners). As one might imagine, Diamond’s front-desk people purportedly hated the video, because they could not get away from it.
The last time I stayed at a Diamond resort, I asked the front desk folks, “where’s the Cloobeck video.” They laughed out loud, then confessed, “locked in the general manager’s safe.” Never to air again.
In a semi-recent YouTube interview about his Undercover Boss appearances, Cloobeck told an interviewer that he initially balked at doing the show “because I was afraid of tarnishing the brand.” Still, he was obviously proud of the whole adventure. Later, when asked about Diamond’s philanthropic programs for charitable causes, Cloobeck beamed, “I’ve always been a great philanthropist.”
After the second Undercover Boss episode aired, Cloobeck decided to put his money where his mouth was. “I wanted to do something special for our team worldwide. I donated $1 million, matched by the company, for a $2 million fund for team members that need help,” Cloobeck told the interviewer.
Diamond timeshare owners should like that bit of philanthropy, since they paid for it with their purchases, mortgages and maintenance fees.
I only met Cloobeck once, but it was a total goof and probably did not even register with him. I was attending an industry conference in Las Vegas, hanging outside the media room while CEOs attended a private session next door to talk about high-level (i.e., secret) timeshare issues. Suddenly, there was a flurry of movement. It was the unmistakable Stephen Cloobeck, larger than life, decked out in golf shirt and shorts, swaggering through the lobby with a cigar in hand and accompanied by a big, beefy, bald-headed bodyguard (a very big version of Kojak, for those who remember Telly Savalas) who cut a swath for Cloobeck through the curious folks in the lobby. Compared to the other CEOs who were dressed like bankers, it was a classic Cloobeck entrance. Arrive late, act like you just left the golf course (which he had), then leave early. I tried to introduce myself to Cloobeck, without slowing him down, but desisted when the bodyguard started twitching at me while his gold earring bobbed like a fish hook. The pockets of his business suit bulged, too. Regardless, it was a great moment: short, sweet, unforgettable Cloobeck.
Inspired by what I’d seen, the next day I called Diamond’s corporate office in Las Vegas to see if I could arrange an interview with Cloobeck while I was in town. Seemed like a pretty automatic thing to do. He seemed much more interesting than many CEOs I’ve met and was obviously living life as a self-styled timeshare celebrity, so why not? Good idea to see him in his lair for a feature story just like this.
That was three years ago. I’m still waiting for the call back.
Out with the Public Company, In with the Private Company
So now it’s time for all timeshare owners to say goodbye to the Old Diamond, and hello to the New Diamond. While both Cloobeck and Palmer promised in their emails that nothing would change as a result of the merger, that is not realistic. Business people outside Diamond’s inner circle say there are always big changes when one company takes over another. There are many winners and losers, including the people who get hired or fired as a result of Apollo’s integration of Diamond into its many-affiliate universe of companies. After all, Apollo did not buy Diamond to keep everything the same. Apollo bought Diamond, which has been hugely profitable for 12 quarters in a row, to make even more money. More importantly, now that it will operate as a private company, Diamond has no legal obligation to file quarterly reports about earnings or annual reports. Here’s what that means: barring voluntary announcements or web postings from Diamond, timeshare owners will have no easy to way to find out what’s going on with their timeshare company. You’ll only learn what they want you to know.
Will reservations get easier? Will owners ever be able to sell their Diamond Club points on the resale market? Will Diamond take them back? Stay tuned.
FYI, we asked Diamond’s PR team to arrange an interview with Palmer to talk about these issues, but they have not responded. We will keep you posted if they do!
Full Disclosure: In addition to being a reporter who covers timeshare issues, I am a longtime Sunterra/Diamond owner who has had generally positive experiences using my legacy weeks. Even though I have stubbornly refused to convert them to points, Diamond still comes after me, every six months, to become a full-fledged member, rather than an orphan, of The Club. I don’t mind. Diamond has pretty likeable employees. Their solicitations are always challenging.
I have also covered Diamond’s showdown with Lake Tahoe Beach & Ski Club extensively.
For more info on Diamond’s financial performance, see Diamond’s last quarterly earnings announcement, published Aug. 6, 2016.
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NOTE: The views expressed here are the author’s own, and do not necessarily reflect or represent the opinions of RedWeek.com or its affiliates.