Patrick Henderson 11 a.m., May 26
SeaWorld going public. Don't bite.
Deal has fishy smell. Insiders will make out like bandits
SeaWorld Entertainment, including San Diego's facility and Chula Vista's Soak City water park, intends to go public this week at between $24 and $27 a share (likely $25.50). In my judgment, this one shines and stinks like a rotten mackerel in the moonlight. Dan Freed of The Street.com used a similar analogy when he wrote about the preliminary deal in late December: it "stinks like a rotting whale carcass." This is one of those deals in which a private equity organization, Blackstone Group, bought the company from Anheuser-Busch in 2009, then loaded it up with debt to pay off the acquirer. In December, Blackstone had already jacked up Sea World's debt load to the tune of $610 million to pay itself two dividends, points out Freed.
At $25.50, the net proceeds should be $231.3 million, says the initial public offering prospectus. Nary a penny goes to the company. The money goes to pay off debt. Here is a key line from the prospectus: Blackstone and co-investors purchased 100% of SeaWorld in 2009 "through SW Cayman LP, SW Cayman ALP, SW Cayman BLP, SW Cayman CLP, SW Delaware DLP, SW Cayman ELP, SW Cayman FLP, SW Cayman Co-Invest LP, SW Cayman (GS) LP, and SW Cayman (GS) LP." If you were paying attention in the 2012 election, you learned how private equity groups use offshore tax and secrecy havens, particularly the Cayman Islands, to get around United States regulation or taxes, or both, although Mitt Romney said otherwise. "So who owns SeaWorld and all its confusing chain of subsidiaries?" asks Freed. "Lots of shell companies, most of which have the word Cayman in the in the title." (The Caymans are supposedly great for snorkeling, so maybe SeaWorld is expanding its ocean mandate.)
SeaWorld is still loaded with debt, the prospectus warns. And here's another warning from the prospectus: if you pay $25.50 a share, you will have immediate dilution of a whopping $24.33 a share. Blackstone, which paid less than half what you will, retains 73.8% ownership. Quartz, a digital financial publication, points out that SeaWorld will sell for 27 times earnings, while competitor Six Flags sells for a 12.1 multiple and Disney 19. "Sea World's revenues, $1.4 billion last year, look good, until you compare them to Disney's. The latter's parks and resorts brought in $12.9 billion." says Quartz.
Bottom line: you will be paying an extremely stiff price for an outfit controlled by questionable insiders.