Grand Ole Opry in Play After Poison Pill Voted Down: Real M&A

Country-music history could be up for sale as the owner of the Grand Ole Opry, the showcase that’s hosted everyone from Johnny Cash to Dolly Parton and Carrie Underwood, is pushed to weigh its options.

Gaylord Entertainment Co., the Nashville, Tennessee-based company that also owns nearby attractions and four combination hotel and convention centers across the U.S., moved closer to becoming an acquisition target last week when shareholders led by Mario Gabelli’s Gamco Investors Inc. voted to let a poison pill guarding against unwanted takeovers expire. The $1.69 billion company is already reviewing options to boost its shares, which fell 33 percent last year.

Even with analysts projecting record earnings before interest, taxes, depreciation and amortization for the next three years, Gaylord is valued at a 28 percent discount to hotel owners, according to data compiled by Bloomberg. The company’s profit growth and unique assets may attract interest from its biggest shareholder TRT Holdings Inc., owner of the Omni Hotels chain, Host Hotels & Resorts Inc. or a private-equity firm, Penn Capital Management said. Gaylord could fetch at least $45 a share, a 37 percent premium to its average price during the past 20 days, BGB Securities Inc. said.

“Gaylord has tremendous opportunities to grow,” Sam Yake, an analyst at BGB Securities in Arlington, Virginia, said in a telephone interview. “Shareholders think that the stock’s worth a heck of a lot more than it’s currently trading at and I think that’s what they want to get at. Management knows that they need to do something.”

Looking at Options

Brian Abrahamson, a spokesman for Gaylord, declined to comment on what steps the company may take to boost its value or whether it has been approached by suitors. He referred instead to Chief Executive Officer Colin Reed’s comments on a May 8 conference call.

“Over the last six months, we’ve been looking at all options available to the company to unlock value,” Reed said on the call. He said the process was “nearing completion,” without giving a timeline or providing further details.

Gaylord, which traces its roots to an Oklahoma publishing and media company founded by Edward King Gaylord in 1903, generated 93 percent of its revenue last year from its hotel operations, according to the company’s annual regulatory filing. It runs convention-center resorts in the Nashville, Dallas, Washington and Orlando, Florida areas, as well as a Radisson Hotel at Opryland near the Grand Ole Opry House.

The company bought the Grand Ole Opry in 1983, acquiring an institution that began in 1925 as a barn-dance radio program and evolved into a stage show and country-music magnet.

Rascal Flatts

The Opry has featured a roster of country, gospel, bluegrass and other performers from the Everly Brothers in the 1950s to Tammy Wynette in the 1970s and Rascal Flatts today.

Gaylord posted losses for two years starting in 2009 as bookings and room rates fell amid the recession, and as a May 2010 flood caused severe damage to its Nashville properties, including the Opry. Even as the company returned to profit in 2011, the stock lost a third of its value.

In December, Gamco proposed that shareholders vote against extending a poison pill designed to thwart unwanted buyers, a measure that passed last week.

Even after rising 43 percent this year through yesterday, Gaylord is trading 40 percent below its record closing price of $57.88 set in July 2007 before the start of the longest recession since the Great Depression, data compiled by Bloomberg show.

Today, the stock fell 1.1 percent to $34.14.

Extensive Review

“Over the last 12 months, our stock price has traded substantially below its true value,” CEO Reed said on last week’s earnings call, two days before the shareholder vote. Reed said Gaylord’s review of options, which the company signaled in February, has been “very, very extensive. Once we lay our plans out, I think it will make it much easier for investors to value our company.”

Gaylord’s equity and $1 billion of net debt was valued as of yesterday at 12.7 times its Ebitda in the last 12 months. That’s 28 percent less than the median Ebitda multiple of 17.7 for hotel real estate investment trusts, or REITs, with market values greater than $1 billion, according to data compiled by Bloomberg. Host Hotels is valued at 16.1 times, the data show.

Gaylord’s “valuation is much lower than the hotel REITs, significantly lower,” Eric Green, a Philadelphia-based manager at Penn Capital, which oversees $6 billion and owned about 1.3 million Gaylord shares as of year-end, said in a phone interview. “Yet, the Gaylord properties are four best-in-class properties that are run extremely well with a lot of potential upside.”

Attractive Target

Gaylord doesn’t have the tax status of REITs, property trusts that develop and own everything from warehouses in California to skyscrapers in New York. REITs can avoid paying corporate taxes in the U.S. when they distribute at least 90 percent of their net income as dividends.

Amit Kapoor, a sell-side analyst for Gabelli & Co. in Rye, New York, said Gaylord’s valuation and the expiration of the poison pill this August may make the company an attractive acquisition target for another hotel operator or a private-equity firm that can grow the brand, add more properties and leverage existing relationships with meeting planners.

Gabelli is the research arm of Gamco, the publicly traded asset management firm that Mario Gabelli founded in 1977 and now oversees $36.7 billion. Gamco was Gaylord’s third-biggest shareholder with a 13.5 percent stake as of April 20. Mario Gabelli wasn’t available for comment.

Paulson Stake

Billionaire John Paulson took a 2.78 percent stake in the company in the first quarter, making him Gaylord’s eighth-biggest shareholder, according to a regulatory disclosure filed yesterday by his investment firm Paulson & Co., which manages about $24 billion.

Analysts estimate that Gaylord’s net income will more than triple this year to $36 million as business conditions improve and the company draws more leisure visitors. Ebitda is projected to climb to new records each year through 2014.

Gaylord could fetch at least $45 a share in a takeover, according to BGB Securities and JMP Securities.

“The four large hotels that the company owns are well maintained, they generally run at strong occupancies and have the potential to realize rate growth over the next few years,” William Marks, a San Francisco-based analyst at JMP Securities, said in a telephone interview. “There’s also value at the Grand Ole Opry business.”

Expansion Plans

With the company planning a fifth resort and convention center outside of Denver, a takeover by a private-equity firm or large hotel company would help Gaylord fund the project, which will cost $800 million, and other developments in the future, according to BGB Securities.

A takeover by TRT Holdings is one possible outcome as billionaire Robert Rowling has increased his position in Gaylord to 22 percent, said Nikhil Bhalla, an analyst at FBR & Co.

“The aim would be to realize synergies between Omni and Gaylord,” Bhalla said in a telephone interview from Arlington, Virginia. “You’ll have a larger portfolio of hotels and you can trim down the corporate overheads to manage both.”

Robert, the owner of Irving, Texas-based TRT Holdings, declined to comment on whether he has intentions to acquire Gaylord.

Gaylord could also provide “large, irreplaceable types of assets” to a REIT such as Host Hotels, which partners with hotel operators from Marriott International Inc. to Four Seasons Hotels and Resorts, Bhalla said.

Other Options

Greg Larson, a spokesman for Bethesda, Maryland-based Host Hotels, didn’t return a phone call seeking comment on whether the company is interested in acquiring Gaylord.

Instead of seeking a buyer for the whole company, Gaylord could sell its assets while still maintaining managerial control over them, Chris Jones, an analyst at Telsey Advisory Group in New York, said in a telephone interview.

“You could do a partial sale or a sale of a single asset whereby Gaylord would hold onto some form of a management contract of the facility,” Jones said. “A large core thesis and trend you see within the lodging industry has been a move into a more asset-light program.”

Still, breaking the company into pieces wouldn’t provide as high of a return for investors as an outright takeover, said JMP’s Marks.

“The best way to create value for shareholders in the near term is to sell the company,” Marks said.

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