SeaWorld Entertainment Inc. just got its second big endorsement of the year, and it may carry even more weight than the first.
Hill Path Capital LP, an investment firm run by former Apollo Global Management LLC partner Scott Ross, bumped its stake in the struggling theme-park operator this week to 7.7 percent. The move follows the March announcement by China's Zhonghong Zhuoye Group Co. that it's spending $450 million to purchase Blackstone Group LP's remaining 21 percent stake.
Seaworld's new Chinese investor is expected to bring the SeaWorld brand and its parks to Asia, which is a positive. But its influence may be limited in the U.S., where the $1.6 billion company currently earns 100 percent of its revenues and attendance is flailing amid the shuttering of its flagship orca show at certain parks. That's where Hill Path's Ross may come in.
Hill Path isn't an activist per se, but it has held discussions with Seaworld's board and management and expects to have more on topics ranging from performance to governance. Any outcomes should be a boon for shareholders because Ross knows a thing or two about the industry: He was involved in Apollo's buyouts of pizza chain Chuck E. Cheese and water-park operator Great Wolf Resorts Inc. (which earned the firm a return of around 2.5 times its initial investment), as well as its aborted takeover of amusement park operator Cedar Fair LP.
Ross hasn't disclosed strategies that SeaWorld should turn to, but other shareholders have the right be hopeful that he'll have new suggestions about how the company can boost margins, which will in turn lift earnings and help it more quickly pay down its massive debt load. Any signs of success will help the company that once traded at a premium to rivals including Six Flags Entertainment Corp. and Cedar Fair decrease the distance by which it currently trails.
Any bounce in SeaWorld shares should also help whittle down the amount of short interest in the company. Traders have already started trimming their bearish bets from a peak last year as SeaWorld canceled its dividend, implemented a cost-savings program and pushed to install new attractions (while spending less).
According to research from FBR & Co. published Tuesday, SeaWorld has actually been the most aggressive of its peers at hiking prices recently, a revenue driver that may offset the impact of heightened competition in places such as Orlando, where it vies for market share against Walt Disney World and Universal Orlando. Has it worked? The company is on deck to post first-quarter results next week, so intrigued investors including Hill Path don't need to wait long to have a better sense of how the recovery is stacking up. More than likely, they'll be left measuring how far there is to go.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
The likelihood of Ross himself joining SeaWorld's board in the near future appears to be limited, if only because the company has already issued its proxy statement ahead its annual meeting next month.
That stake sale -- which is pending approvals -- is poised to land the Stephen Schwarzman-led firm a return of 2.7 times its 2009 investment.
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