LONDON (Reuters Breakingviews) - Killer whales sometimes hunt seals with carefully-orchestrated attacks to tip them off disintegrating ice floes. UK-listed theme park operator Merlin Entertainments may be planning something similar with SeaWorld, by trying to dislodge its Busch Gardens division. Breaking up the operator famed for its orcas might create some value, but it still looks a slippery target.
Both companies were previously owned by Blackstone and listed in 2013. The private-equity firm run by Steve Schwarzman sold its last stake in Merlin in 2015 and offloaded its SeaWorld holding to Chinese group Zhonghong Zhuoye in March. Neither company has escaped controversy since going public, with Merlin marred by a rollercoaster crash at its Alton Towers theme park, and SeaWorld’s valuation yet to recover from the “Blackfish” documentary showing poor treatment of killer whales.
A bid makes sense for Merlin. It wants to diversify away from its UK home market, which still generates 30 percent of its profit. The company’s finance chief already identified SeaWorld’s two Busch Gardens parks as potential acquisitions. An all-cash deal might push its debt to a toppy four times EBITDA, Stifel analysts reckon, perhaps requiring some equity too. But investors like the idea: Merlin’s share price rose over 3 percent on news of an approach.
There might even be some financial benefits for SeaWorld. Say the parks could be offloaded at a conservative 11 times EBITDA multiple, a slight premium to the group’s current valuation. A sale could fetch $1.6 billion based on estimated EBITDA of $145 million for the parks this year, adding around 10 percent to its market capitalisation.
Yet SeaWorld shareholders seem glum, sending its shares down 2 percent. That may be because they were hoping for a full takeout. Merlin after all has sea-life parks too. But its policy of not keeping large mammals such as killer whales or dolphins in captivity rules that out. And what remains is likely to be subscale, and need investment. Its largest Chinese shareholder, who bought in when the stock was around a fifth higher, may not be ready to sell. Without a clear plan for the rest of the business, Merlin’s next meal is likely to remain elusive.
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