It's rumor time, no, we aren't starting a rumor, RD is talking about a huge one we posted about yesterday, that Merlin is interested in buying the Busch parks from SeaWorld if they should become available.
Right now it's a HUGE if, although this mornings earnings call filled in a few of the gaps as the news was bad all around. RD investigates the various options for the Busch parks should they come up for sale.
Written by R.D. Sussman-Dewberry
In the news recently have been several rather important notes about the business that we are all a part of: Theme parks at a crossroads. Indeed, seeing the ouster of the former president of SixFlags Inc for their old head is one of them, as is seeing Joel Manby of SeaWorld Parks (SFP) discussing options for the future of that chain. Right now, theme parks are profitable, with new attractions beginning to be announced for 2018 and beyond, and a good segment in the investment industry to be looking at.... so long as you're buying Disney or Cedar Fair.
Let's take a brief look into what's going on - and why it is going on.
SeaWorld Parks was created during the tumultuous times following the AB-InBev merger in 2010. In essence, the parks were spun off from Anheuser Busch into a separate company in which an ownership group took control, before going public later on. The parks were profitable, growth was good... and then a mockumentary called "Blackfish" was released - a joint effort of PETA and CNN. Being run as pure fact, without the knowledge of SeaWorld Parks, it led to a drop in attendance at the SeaWorld throughout. Later, the mockumentary was rebuked in full as being pretty much fiction - but the damage was done, and PETA was able to put a knife into a great park company. (As an aside: I will forgo my thoughts on PETA and what they did other than to say this: They had a motive, they had a weapon, and they had the means to kill off the chain. )
Since then, the two Busch Gardens parks, the water parks and Sesame Place have all been doing well - in fact, financially supporting the company through these rough times. Though numbers have turned around... they are still lagging the financial success they once had. Joel Manby was brought on board to take the parks in a new direction - and has done so with as much effort as he had shown with his previous employer, Herschend Family Entertainment.
It was announced recently that SWP/Manby had brought in a consultant to look at the future of the company - and the parks therein. Speculation has begun as to the outcome of this, and to the future of the SWP chain. Today it was released that the two Busch Garden parks are now in play - as a spin-off of the SWP company. It would effectively split the company back to the way it was prior to 1986 - before Busch Entertainment Corporation was founded.
So who could bid - and why? Here's my short list.
Cedar Fair: While CF is doing fine financially, to take on the debt of this transaction would be rather extreme. They are now balanced with their finances in check, and showing good numbers profit wise - but at this time it would be taking on another huge chunk of debt to digest in one meal. Financially, it would be rather hard for them to swallow without divesting a park or two along the way.
Merlin: Merlin's financial situation is similar to CF's in terms of debt and equity - but has had a reputation for issues with some parks and the quality of the attractions they have added. Fiscally speaking, they are strong enough to do so - but will have the same financial indigestion afterwards.
Herschend: To me, the most obvious - and best fit - choice for the Busch Gardens Parks. A solid management team from corporate, good financial resources, a mountain of unrestricted cash on hand - and a reputation for quality that is equal to Disney (and in some cases BETTER than Disney). They have been looking to expand for a while, and now have an opportunity to do so with two award-winning parks.
These three companies represent the best possible answers as of right now. Other firms may become involved as well - and depending on the situation, we could even see places we're not familiar with taking a hand in the process.
And as you noticed... SixFlags Inc was left out.
SF Inc is now negotiating financial waters which are at best rocky - and at worst, a storm that will rip that company apart. Financially, the debt situation there is now at a critical mass - with a DDD- credit rating (Basically: Junk bonds) and with a debt to equity ratio that is nearly 4-1 (For every $4.00 of debt, $1.00 is equity/assets) The ouster of their previous president is a VERY ominous sign - and the competition is ramping up their game across the country. Parks like Silver Dollar City (Herschend) in Branson, MO and Knott's Berry Farm (CF) in Buena Park are preparing to add world-class attractions that will invariably draw people away from SF Inc's parks. That level of competition requires an offensive strategy to get people back INTO the SF parks... which too is failing. As of the Q4/Q1 gate totals: Overall attendance is flat - and guest spending is down drastically year over year, despite growth in season pass sales/use. This is a GIANT red flag that there are issues with what people are wanting in the parks - and what they are willing to pay for when there.
At the same time, the strange ownership of SixFlags parks - and the brand therein - may also be in play. The Wynne Trust - who own SFoG & SFoT - as well as the Six Flags name - has become more vocal in the past few months towards their own parks - and the operations therein.
In short: SFInc is closer to their day of reckoning than we've seen since 2005... and their last trip through bankruptcy court. The situation is now becoming very close to that - and is showing signs that to avoid the return that they will have to start shedding assets - and liquidating others - to prevent their financial collapse. While I do not ever see them shutting down (that's foolish folks - you should know better) I do see them looking into their crystal ball - and looking at what assets are performing, which are lagging... and which ones will be sold off. They are now in a place where this is not just an 'if' but rather a 'when' and one that no company should EVER be faced to look at.
In the words of Margo Channing (Look her up, kids...) "Fasten your seatbelts. It's going to be a bumpy night." We are right on the edge of some serious shakeups in the theme park game - with some big winners, some big losers - and a hell of a lot of upheaval at the end.
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