Entertainment

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

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.

Not Convinced
On average, Wall Street analysts don't envisage a major SeaWorld turnaround that will enable it to bounce back to $23, the price Blackstone fetched for its stake
Source: Bloomberg

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.   

Foot Traffic
There is increasing investor confidence that SeaWorld can arrest its declining attendance through pricing, promotions and new attractions
Source: Company presentation

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.

Room for Improvement
Wall Street values SeaWorld below local and offshore rivals on a host of metrics, in part because of its heavy debt load and lackluster margins
Source: Bloomberg
*Data reflects blended forward multiples

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).

Rise and Fall
Although the number of investors betting against SeaWorld has decreased in recent months, some skeptics remain
Source: Markit via Bloomberg

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.

  1. 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.

  2. 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. 

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net