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Merlin Entertainments: General Discussion

Lurker

TS Member
Team Edit: This topic has been renamed to "Merlin Entertainments General Discussion". As the buyout is now completed, the topic has evolved to include all general discussion about the group.

Today there is a news article in the Guardian, with one investor stating that Merlin went public too fast, and should be made private again.

https://www.theguardian.com/busines...by-us-investor-to-go-private-valueact-capital

Seem like an interesting piece of news, especially given other recent news (the one with shareholders suggesting Merlin should focus more on the long term and guest satisfaction).

Short-termism seems common to companies trying to get the returns demanded by their shareholders. Would Merlin and the parks be better off private, answering to investors instead of share holders? Hard to say!

Also reported in the FT https://amp.ft.com/content/c7757e7a-7cd5-11e9-81d2-f785092ab560
 
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HSBC also made a statement a few days ago.

www.proactiveinvestors.co.uk/companies/amp/news/220592

Merlin Entertainments shares fall as HSBC downgrades to 'reduce' from 'buy’

Concerns about the long-term

However, the bank has concerns about the long-term.

“Returns on capital are above weighted average cost of capital, but at circa 8-9% not especially compelling, especially when set against a share price that commands a multiple of 18.6x pre-earnings, 15.7x enterprise value/EBIT,” it said.

The bank added that newer developments look set to have a different returns profile to old ones, taking longer to mature.

While the developments could end up being more profitable in the future, they add a greater degree of risk to the group and perhaps less transparency, HSBC said.

Merlin could make shareholder returns at the expense of growth

HSBC said its analysis suggests profits at the business have been broadly flat over time, while returns from new builds have been towards the lower end of the targeted 15-20% EBITDA range.

“Return on invested capital could rise over time as the business model evolves to become more asset light, but the downside is that this could be at the expense of growth: A new Legoland development on a management contract could only add c.1-2% to group profits vs. the more chunky increments when the group puts its own capital at risk,” it said.

“Unless it embarks on M&A, or finds a new format that it can roll out aggressively, that might mean that the group goes from a growth stock to one that returns excess cash to shareholders. This is not a bad thing but, again, the group is priced for more.”

Ultimately, HSBC does not see an obvious reason for Merlin to trade at a premium to UK-listed leisure groups such as Carnival PLC (LON:CCL)or Cineworld PLC (LON:CINE), which have a strong growth story and make similar returns.

Merlin shares fell 5.8% to 353p in morning trading.



 
It is also reported in Reuters, with the addition of a semi interesting statement:

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.

I would think the resort theme parks division would be the first candidate for ‘divestment’ if it came to that.

https://uk.reuters.com/article/uk-m...auds-owner-merlin-to-go-private-idUKKCN1ST0DE
 
Be careful what you wish for. Going private provides scope for the parks to be bled dry in a way a public company could never get away with. Check out Toys R Us for an example of how this can go.
 
Lego family's Kirkbi and Blackstone to buy Merlin Entertainments: FT
(Reuters) - Britain’s Merlin Entertainments Plc (MERL.L) is to be acquired for 6 billion pounds ($7.6 billion) by a group made up of Kirkbi, the investment vehicle of Lego’s founding family, private equity firm Blackstone Group LP (BX.N) and Canadian pension fund CPPIB, the Financial Times reported on Friday.

The deal is expected to be announced for the operator of Madame Tussauds waxworks as soon as Friday morning, but no deal was guaranteed until the announcement, the FT said on.ft.com/2X9zLxD, citing multiple people it said were close to the matter.

Merlin, Kirkbi, Blackstone and CPPIB did not immediately respond to requests for comments.

($1 = 0.7893 pounds)


https://uk.reuters.com/article/us-m...to-buy-merlin-entertainments-ft-idUKKCN1TS3EI
 
So potentially back to the days of 2007 when Tussauds Group was bought by Blackstone - full circle in 12 years potentially! I guess with Kirkbi's involvement (although they already have a pretty massive holding in Merlin) and a longer term pension fund being involved we'll potentially see less pressure from short term cuts.

It's interesting to see Blackstone returning to theme parks though. They sold their remaining stake in Merlin in 2015, Universal in 2013 and Seaworld in 2017 although admittedly Blackfish backlash didn't help matters with that one. They made a fortune on pretty much every sale, so we'll likely see some sort of large expansion taking place. The question is, how will that be done? Improving theme parks, expanding midways or perhaps buying other operators such as Seaworld or Six Flags?

When Blackstone first bought Merlin back in 2005, they soon snapped up Legoland, Garda and Tussauds so they do have form on using acquisitions to expand. Interesting times whatever happens though!
 
I wonder if they will spin off the theme parks or embrace them. It's an interesting turn of events for sure, I just hope they don't retain any of the dead wood.
 
BBC are saying the offer has been accepted.

Legoland and Madame Tussauds waxworks owner Merlin Entertainments has accepted a £4.8bn offer for the firm.
A group of investors, led by the Danish billionaire family which controls the separate toy firm Lego, has made the approach alongside a group of other private investors.
Kirkbi Invest says it has the money and experience to "realise the company's potential to grow".
Merlin also owns the London Eye and Alton Towers.

https://www.bbc.co.uk/news/business-48797245
 
Do you think its Kirkbi's way of getting Lego Land back under their control? No way Merlin would just sell off the Lego parks so they have had to go whole hog and buy the group which will then be sold off?
 
Oh my god this is amazing news! Hopefully the first thing the new owners do is give Nick Varney the boot!

Fingures crossed we now see real investment for the parks!
 
Was just about to say the same.
Best way for Lego to get control of all Lego.
Now they split off and sell off everything else
Will be interested to see if they put the rest up for sale or not... I could certainly see them getting rid of either Chessington or Thorpe as they will already own other major parks in the region
 
BBC article updated,

nothing will be split and sold off and they look forward to moving Merlin upwards.
https://www.bbc.co.uk/news/business-48797245

Legoland and Madame Tussauds waxworks owner Merlin Entertainments has accepted a £4.8bn takeover offer for the firm.

A group of investors, led by the Danish billionaire family which controls the separate toy firm Lego, has made the approach with other private investors.

Kirkbi Invest says it has the money and experience to "realise the company's potential to grow".

Merlin also owns the London Eye and Alton Towers.

Kirkbi already owns almost a third of the shares in Merlin Entertainments, and says it does not expect the deal to lead to any significant changes.

All existing Merlin attractions in the UK will remain open and it has no plans to sell any part of the business, it said.

Kirkbi chief executive Søren Thorup Sørensen said the group wanted to help the firm reach its "full potential, which we believe is best pursued under private ownership".

"With a shared understanding of the business and its culture, we believe that this group of investors has the unique collective resources necessary to equip Merlin, for their next phase of growth," he added.

Private equity firm Blackstone - part of the investment group - said it had the "substantial resources" required to support Merlin's long-term plans "which will require significant investment to ensure its long-term success".

Merlin is the second-largest operator of visitor attractions globally with more than 130 attractions in 25 countries.
 
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