The ownership tide is turning at SeaWorld Entertainment (SEAS +4.47%). Shares of the theme park operator moved higher on Friday -- hitting its highest levels since late last month -- after a subsidiary of China's Zhonghong Zhuoye Group agreed to buy Blackstone Group's (BX +0.00%) 21% equity stake in SeaWorld Entertainment.
The market clearly likes the shift of shares judging by Friday's stock move, but let's dig a little deeper into what this roughly $429 million transaction actually means for SeaWorld investors and the chain itself.
Image source: SeaWorld Entertainment.
1. SeaWorld isn't pocketing the money
This isn't a fundraiser for SeaWorld Entertainment. Zhonghong is paying $23 a share for its stock, a 33% premium to yesterday's close, but it's all going to Blackstone Group, the private equity giant that took SeaWorld public at $27 a share four years ago.
Handing off the stake at a markup is a sweet deal for Blackstone and SeaWorld. If Blackstone would've tried to unload the stock in the open market or through a secondary offering, the shares would've taken a hit, hurting both Blackstone and SeaWorld investors. However, there is no new money funneling its way into SeaWorld itself here. It's SeaWorld's largest investor handing over its shares to what is now SeaWorld's largest investor.
2. This isn't necessarily the prelude to a buyout
There will be some buzz about Zhonghong eventually buying all of SeaWorld. If it was willing to pay a 33% premium for a little more than a fifth of the company, how much would it be open to paying for all of SeaWorld?
We may never get there. Part of this transaction involves receiving approval from SeaWorld's independent board members if Zhonghong wants to grow its stake beyond 24.9%. Sure, it can always happen. If Zhonghong likes what it sees after seeing it from the inside -- and it will send two executives into the boardroom as long as it owns at least 20% of the company -- a deal may materialize. However, for now, it's just a strategic investment.
3. SeaWorld will eventually pop up in Asia
SeaWorld turned heads three months ago by announcing a partnership to open a park in Dubai. It will be the namesake brand's first park without killer whales. It won't be the only international branch of SeaWorld.
An interesting part of this agreement is that SeaWorld entered into an agreement where it will team up with Zhonghong and theme park designer Hettema Group to develop concepts for theme parks, waterparks, and interactive parks in China. The parks would be operated by Zhonghong, and it remains to be seen what SeaWorld would rake in given its advisory role. It may not be as lucrative as its stateside parks, but naturally it also won't be its capital at risk.
SeaWorld is still in a bind. Attendance has fallen in three of the past four years, and it saw revenue and attendance levels shrink and its loss widen during the holiday quarter. Zhonghong may not change that just by showing up, but it's committed to sticking around. There are restrictions in place that should keep Zhonghong from selling its shares for at least the next two years. In short, Friday's deal is a win for all parties, but the hard turnaround work continues.
