Six Flags Slims Down

Sometimes, it's not what you sell but what you don't sell that counts. Six Flags (NYSE: SIX  ) announced that it's selling four of its amusement parks and three of its outdoor waterparks in a $312 million deal that will help the regional operator pay down its debt. Missing from the shopping list is the iconic Six Flags Magic Mountain and its adjacent waterpark, which the company had initially bundled onto the bidding block last summer.

This doesn't mean Six Flags will keep the coaster-blessed Southern California destination. The park's massive size and the valuable real estate it rests on would fetch a pretty penny as a standalone purchase. However, the move suggests that the company may be willing to give its family-friendly approach one more year to unlock the massive potential of the year-round park.

This morning's deal may not seem all that encouraging on the surface. Six Flags projects that 2006 EBITDA clocked in at $220 million to $225 million. The seven parks being sold accounted for $30 million -- or 13% -- of that EBITDA sum. With an enterprise value of $2.6 billion, the company is getting only 12% of that back, in the form of $275 million in cash and a $37 million note.

Don't worry, though. Six Flags is still getting a good deal. The company is working off depressed EBITDA levels, and most of its remaining parks are more valuable than simply the operating profits that they generate.

You will also find that most of the parks being sold are in cold climates, where operating seasons are typically shorter. Last year, Six Flags shaved several weeks off the operating calendar at the Darien Lake park in Buffalo, which is being sold.

Long seasons are important when you're investing capital in new attractions and other capital improvements. That's the case with Disney's (NYSE: DIS  ) coastal parks, General Electric's (NYSE: GE  ) Universal Orlando, Anheuser-Busch's (NYSE: BUD  ) Busch Gardens Africa, and the Cedar Fair (NYSE: FUN  ) -owned Knott's Berry Farm.

Working off a smaller base of high-profile parks will help Six Flags in the near term. It is in the process of incorporating licensing deals with kid magnets like The Wiggles and Thomas the Tank Engine. Success on those fronts will have a more dramatic impact on the bigger parks serving larger metropolitan areas. If the plan is a hit, Six Flags may regret having fewer parks to cash in on down the road. However, the debt-heavy balance sheet and the need for more focus on fewer lucrative locations make this the right deal for the company right now.

Disney is a Motley Fool Stock Advisor newsletter service selection. Cedar Fair is an Income Investor stock recommendation, and Anheuser-Busch is an Inside Value recommendation. All of our newsletter services come with a free 30-day trial.

Longtime Fool contributor Rick Munarriz enjoys taking his family on coaster treks during the summer. This past season, he made it to a pair of the Six Flags parks the company is keeping. He owns shares in Disney and units in Cedar Fair. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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