Blackfish And Its Impact On SeaWorld (SEAS)

I guess this sort of analysis (by a Motley Fool writer) in Daily Finance is why SeaWorld identified films and books following incidents as a potential risk for investors in the SEC filings for their IPO:

As this “PR battle on the high seas” continues to unfold, important questions should be raised. Who will win this PR battle? Should this be cause for concern with SeaWorld investors? Are there more attractive investment options in the amusement park industry? We will be diving into the answers to these questions and see how even if SeaWorld “wins the argument,” the damage Blackfish is currently wreaking will outweigh, and there are better options for investors to look into.

Why SeaWorld will be harmed

To approach the question by pitting Blackfish against SeaWorld and asking who will win or lose is erroneous. Even if SeaWorld successfully disproves Blackfish’s claims, the company will most likely have already lost in the court of public opinion. Consider the example of the “Gasland” documentary, and how public debate has erupted and actual policy change has been enacted over hydraulic fracturing. Even though the claims of Gasland are hotly disputed, and a counter-production to Gasland was created, Gasland’s bad PR effect on hydraulic fracturing is still influencing people and policy-making today. Blackfish will most likely have the same negative affect on SeaWorld at a time when SeaWorld badly needs revenue.

In the beginning of 2013, I wrote a blog post about SeaWorld going public entitled “Shamu Makes a Splash on Wall Street: The New SeaWorld IPO.” In that post, I outlined why SeaWorld’s stock price might have some potential to rise, but overall the company is a very risky investment to stay away from. Many of the talking points I raised in that post are still legitimate almost eight months later. SeaWorld does have a fairly nice dividend payout, but I would stay away from SeaWorld stock for now, especially in light of the growing Blackfish scandal. The fallout from Blackfish shouldn’t be overestimated and will most likely last only a few months to a year at most. SeaWorld still needs to grapple with other looming issues first, though, and that is why SeaWorld stock is a risky gamble at best.

Wonder if it is right.

The Killer SeaWorld IPO

So Blackstone, with the help of Goldman Sachs, has decided to push the imminent IPO from $100 million, to up to $540 million:

Shamu plans to soak Wall Street with a greater splash than previously thought.

SeaWorld Entertainment Inc. — the company known for its performing killer whale — could raise $540 million in an initial public offering on the New York Stock Exchange.

That’s $440 million more than its initial filing in December showed, and $40 million larger than a filing Monday.

Now, the theme park company said it plans to offer 20 million shares priced between $24 and $27, according to a Tuesday filing with the Securities and Exchange Commission. Underwriters have an option to purchase 3 million additional shares, potentially boosting the IPO to $621 million.

The high end of that share price would give SeaWorld a valuation of $2.5 billion, a slight premium on the $2.3 billion Blackstone paid for SeaWorld in 2009.

Much of the money raised appears to be headed straight into Blackstone’s pockets, so I guess the killer whales shouldn’t be looking for imminent upgrades to the pools they live in. But given the controversies over killer whale entertainment, and the OSHA-inspired restrictions on killer whale shows (assuming some survive the current negotiations), Blackstone is just being smart and soaking SeaWorld while it can.

If you want to know about the sharks, as opposed to the killer whales, involved in this deal, I recommend this article, which eviscerates Blackstone’s IPO motives and strategy:

 While Blackstone is apparently the main owner of SeaWorld, someone with a sense of humor at Goldman Sachs decided the infamous vampire squid also ought to have a stake. The size of the stake isn’t specified. A Goldman spokeswoman declined to comment.

Blackstone bought SeaWorld from Anheuser-Busch (BUD) in 2009. Since then, it has increased the company’s debt load to pay itself two dividends worth a total of $610 million. Blackstone also purchased more than $100 million in SeaWorld debt. Some of the proceeds of the IPO will be used to pay Blackstone an unspecified fee.

Blackstone will retain control over SeaWorld after the IPO, which is a good thing for Blackstone, since it will allow the buyout firm to continue receiving all sorts of kickbacks from the company…[snip]

…So who owns SeaWorld and all its confusing chain of subsidiaries? Lots of shell companies, most of which have the word Cayman in the title, except for the one that has Delaware in the title.

But my favorite of the three sentences is the simplest: “we refer to this acquisition and related financing transactions as the ‘2009 Transactions.'”

What related financing transactions? They are apparently on equal par with the acquisition since after that point, the prospectus refers repeatedly, not to the acquisition, but to the “2009 Transactions.”

They may be buried somewhere amid all the other information in the prospectus, but they are undoubtedly far more complex than the simple notion that “Blackstone bought SeaWorld,” which is the only information that a casual reader of business news is likely to have any hope of retaining. Who knows what unknown land-mines and special favors are in the heart of those “2009 transactions?”

This is the standard private equity shell game in which companies are bled white, and left near-lifeless, by Wall Street’s financial wizards. It’s just one more reason it might not be a great time to be employed by SeaWorld.

Why any average investor would dip a toe into this toxic IPO soup, I can’t say. Perhaps Blackstone and Goldman are hoping that SeaWorld’s ardent fan base wants a piece of the action, and will listen to the PR instead of heeding all the warning signs.

It’s certainly going to be an interesting IPO.

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