It's been a week since it was reported that SeaWorld Entertainment (SEAS 2.01%) made a $3.4 billion offer to buy regional amusement park operator Cedar Fair (FUN 0.60%). The amount of the unsolicited nonbinding proposal hasn't been confirmed, but Cedar Fair has put out a press release indicating that an offer was made. Cedar Fair's board is now reviewing and considering the proposal.
Confirming that an offer was made in an official Cedar Fair press release is promising. There wasn't an official response when reports surfaced three years ago that Six Flags Entertainment (SIX 0.80%) allegedly made a $4 billion offer to snap up its rival. This doesn't mean that wedding bells are in the air. There isn't a timeline here. Cedar Fair can take days, weeks, or even months to decide if it wants to take SeaWorld's reportedly all-cash offer, counter with something higher, or conclude that it's just not interested in a deal. Let's see what analysts make of the offer that would combine two of the larger regional park operators under the same ownership roof.
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Analysts click through the turnstiles
At least three Wall Street pros have checked in on the carnival caller on bended knee. Steven Wieczynski at Stifel says the deal makes sense, even if the offer may seem to be a bit low. Offering $60 a share in cash values Cedar Fair for what Wieczynski sees as just a little more than 10 times his estimate for the target's adjusted EBITDA multiple for the year ahead. He feels that SeaWorld would be able to offer between $70 and $80 a share for a deal that would still be attractive for SeaWorld shareholders. He has a buy rating on both stocks.
KeyBanc analyst Brett Andress agrees that $3.4 billion is too low based on consensus valuations for Cedar Fair. He feels that SeaWorld will have to up the bid to between $75 and $85 for Cedar Fair investors to agree to a deal. Given the tax advantages of Cedar Fair's grandfathered master limited partnership structure, he feels that the higher offer would be required to get its unit holders to cash out. He still likes a deal, especially one that is accretive to SeaWorld and can open the door to its management's proven cost-cutting moves.
Finally we have Eric Wold at B. Riley, who is bullish on both stocks but also thinks that SeaWorld may have to bump its offer higher. Wold sees the potential for other bidders -- likely including Six Flags -- to step up with an offer. He sees the highly fragmented segment as fertile soil for consolidation. There may not seem to be a lot of domestic suitors capable of swallowing up a regional amusement park operator, but the playing field expands if we take a global view of the market.
A lot has changed for all three potential players in this love triangle since the late 2019 proposed combination of Six Flags with Cedar Fair. SeaWorld Entertainment has been a rock star, more than doubling. Cedar Fair and Six Flags are trading lower. However, we can't discount Six Flags here. In November it named board member Selim Bassoul as its new CEO. If the name sounds familiar, it's probably because Bassoul was a master of smart acquisitions when he was at the helm of Middleby (MIDD 2.42%).
Cedar Fair is the one that can use a buyout the most. It has taken the longest road to getting back to its pre-pandemic performance. It's also carrying more baggage now. For instance, whoever acquires Cedar Fair will have to go through with a $100 million commitment to local officials at its flagship Cedar Point park in Ohio to improve infrastructure, public amenities, and modes of public transportation.
A combination of SeaWorld Entertainment and Cedar Fair still makes sense. Analysts tend to agree that $60 a share is the starting point of negotiations. Given its stock's rise over the past couple of years, SeaWorld may want to sweeten the proposal so it includes equity along with a lower cash component. Either way, this isn't the last we've heard of consolidation in the world of leisure stocks in general and theme park operators in particular. Enjoy the ride.
