(Reuters) - Hedge fund ValueAct has urged London Eye and Legoland operator Merlin Entertainments to pursue a deal to take the company private, claiming it could fetch around 30% more than its current market valuation.
Merlin, which floated in 2013, is the world’s second-biggest visitor attractions group behind Walt Disney. It has struggled over the past year with rising labor costs and underperformance at its Legoland parks.
In an open letter to the company, ValueAct said that the level of investment needed by Merlin, which also owns Madame Tussauds, meant it would be better off with a return to private ownership.
“While Merlin obviously thrived as a private company, it may have come public too quickly,” said the fund, the company’s second largest shareholder with a 9.3% stake.
“We believe Merlin could deliver value in the mid-£4GBP/ share for shareholders in a public to private transaction, a premium of roughly 30% to the current and recent average share price,” it added.
Shares in Merlin rose more than 4 percent to 346.5 pence after the letter was published. They are up around 9.4 percent so far this year.
The shares were priced at 315 pence upon listing in 2013 when private equity firms Blackstone and CVC Capital sold down their stakes. Denmark’s Kirkbi, the investment arm of the family that owns Lego, remains the top shareholder with a 29% stake.
Merlin’s board said it would be best for shareholders that it continue with its current strategy “to create a high growth, high return, family entertainment company based upon strong brands and a global portfolio.”
“Merlin has had recent discussions with ValueAct Capital, including their perspectives on the options for the company, and intends to continue the constructive dialogue that it has had to date,” the theme park operator said.
Public proxy fights, where hedge funds seek to change the direction of companies they hold substantial stakes in, are common in the United States but less so for London-listed firms.
They often end in companies either selling to a sector peer or divesting pieces of their business in aid of generating more returns for shareholders.
HSBC analysts on Monday hit the stock’s rating with a double downgrade and called it “overvalued”.
Full-year earnings in February, however, beat forecasts and the company has said its outlook for 2019 was positive.
Reporting by Shashwat Awasthi, additional reporting by Justin George Varghese in Bengaluru; Editing by Gopakumar Warrier/Keith Weir