Jana Partners again calls for Six Flags sale

Who are they realistically selling to?

Private equity only makes sense if they see some untapped value they can extract, but Six Flags has already pulled most of those levers. They’ve sold parks, made major staffing cuts, worked on the debt, centralized corporate functions, and chased all the synergy stuff that was probably always going to be limited anyway. These are amusement parks, not Dollar Generals where you can basically duplicate the same operation hundreds of times.

A few of the other chains might be interested in individual parks, but the entire portfolio seems like a much tougher sell.

The ironic part is that Cedar Point alone as a going concern, might have a value surprisingly close to the current market cap when you consider the park itself, hotels, resort operations, Sports Force, other land and assets, and the cash flow it generates.

That really shows how little value the market is assigning to the rest of the company right now given the debt.

Interestingly, Ouimet says go for it.

No degree of financial engineering or changes in strategic direction will substantively change the downward path, unless the reins are handed to others who are willing to commit to the resources and rational timelines that are required to stabilize and ultimately grow the business.

Taking the company private allows (in theory) for more time than what wall street is willing to grant on a recovery. It is the lesser of evils, but history says PE is not great for guest experience.

Matt seems to be lobbying to be brought out of retirement.

Unloading Cedar Point would change the game and potentially be a new lifeline to save the rest of the chain. But you'd also be unloading one of the two (or three) parks that is the current lifeline keeping the chain from completely fading out completely.

I think Matt is really enjoying retirement, and has no desire to go back.

I am inclined to agree with Ouimet's logic, but I struggle to think of what company or group would want to buy Six Flags and then dump billions into improving the parks while also being patient about getting a return on their investment. Venture Capital is out - I can't think of a single time when VC bought a park or chain and then actually improved it. (I actually think SF is on a better course than United now, but I digress.) Other park operators don't seem positioned to make this move either - Herschend and Enchanted are almost definitely not interested or capable of a transaction this big. To my knowledge, the European operators aren't doing much better - Merlin seems to be on the struggle bus, and Parques Reunidos already made its clean break from the US.

I agree that I would still rather see sentimental favorites like Cedar Point and Kings Island in the hands of the current disaster that is Cedar Flags over United.

I fear a sale to private equity would destroy the company: Sell the land to developers for a mint and sell the rides to companies overseas for a pittance.

Problem is I don't think the land covers the debt. they didn't get jack for the parks they sold, so......

“Rational timelines”

I don't think the sale of parks in the outskirts of Muskegon, Michigan, or in a flood plain near Minneapolis necessarily suggests what they might get for property in the suburbs of Los Angeles, San Francisco, Dallas, or Atlanta.

But if you sell the parts that make an outsize portion of the revenue, you have less ability to pay remaining debt. And really it was stupid to sell parks that were profitable. If they're not a drag on your bottom line, why ditch them?

My only theory is they were thinking they could can most of the full time local staff and run the remaining parks remotely from Dallas and that would be easier with less of them. Easier said than done to actually do that successfully. How much of their overall cost of doing business can be attributed to full time staff anyway? Probably not a huge chunk compared to the tens of millions of hours of seasonal labor they need to run the parks. And of course the interest on the debt which is crushing their ability to be profitable.

They really need to figure out something creative, but low in capital expense to get people to show up for a couple years without big capital investments so they can pay down some debt. If the math doesn't change, I don't think they're going to survive too much longer as is.

Jeff:

If they're not a drag on your bottom line, why ditch them?

My assumption here is that SIX needs cash in the short term. Selling parks is unquestionably selling the cow to save the farm.

The simple question for SIX is, do the operating revenues of a given parks exceed the cost of the interest on the amount of debt we can retire? If yes, then by all means keep the park. If not, then find a buyer. So that implies a margin of, say, 8-10% of that amount of debt now, maybe more in the future.

(That's simplified, it ignores whether you think you can improve profitability, network effects of multi-park passes, etc. Also, the parks in question contribute to corporate overhead, spread marketing expense more widely, help lower purchasing costs, etc. Also, you may have to package some better performing parks with some worse performing ones to make a deal. But it's the basic question.)

Jana ought to be able to hold for a long time, and if they thought the stock could recover I assume they would, in fact, hold. I'm guessing they're afraid their $12 is going to go to $0 per share without some drastic action.

Jeff:

And really it was stupid to sell parks that were profitable.

The company wide loan covenants limit how much money can be spent on capex, especially boring capex that doesn't ROI. The problem is that you cannot safely operate some of these rides and facilities without that reinvestment. I still assert some of those parks they sold were done so because they were not profitable, but ignoring that, every park big or small was fighting for a finite pool of dollars just to keep things open and safe.

All legacy Cedar Fair parks were profitable, just not mega profitable like your Knott’s or Cedar Point, but enough so that they covered expenses with money left over.