June 22, 2008

Busch parks may have few takers  

By Chris Flores
Daily Press Staff Writer

After movie company Paramount Pictures said in January 2006 that theme parks didn't fit its core business, it sold all five of its parks -- including Kings Dominion outside Richmond -- six months later to Cedar Fair Entertainment Co.

The parks had been used to promote Paramount films and television shows for 13 years, but those ties started disintegrating after the sale. "The Italian Job: Turbo Coaster" became the "Back Lot Stunt Coaster." "Tomb Raider: The Ride" became "The Crypt."

Now Belgium brewer InBev is considering buying Anheuser-Busch Cos. and selling off its noncore assets -- likely the 10 Busch theme parks -- to help finance the proposed acquisition. Any sale could mean big changes at the area's Busch Gardens Europe and Water Country USA, as well as the brewer's other parks -- considered some of the industry's best.

But there's one slight problem with any plan to sell: There might be no buyers right now -- at least at a worthwhile sales price.

"They might not be able to sell the parks," said John Gerner, managing director of Leisure Business Advisers LLC in Richmond, "or if they sell quickly in a liquidation situation, they're going to get less than market value. There is a price to be paid by rushing this."

Potential buyers of Busch are struggling, and a lack of bidders could drive down the cost when consumer spending is slow. Any sale will also pose a risk that the Busch parks -- steadily profitable because of the care and investment of their parent  -- will lose their Busch branding or quality amid a push for short-term profits.

Much of the value of Busch Gardens Europe, Water Country USA and the eight other Busch parks has come from a parent that has thought long-term and regularly reinvested. Industry watchers are concerned what might happen to that dynamic if InBev buys Anheuser-Busch -- or if another company buys the whole chain.

"There has been a good symbiotic relationship between the two companies, and both have benefited," Gerner said. He has helped evaluate the price of theme parks worldwide and worked as an executive at the brewer's two Busch Gardens parks decades ago.

Neither InBev nor Busch has commented on the attempt by InBev to buy America's largest brewer. InBev has said only that it would sell off noncore assets to finance the deal. Analysts have said that likely includes the parks and a packaging business. Kingsmill Resort is separate from the parks subsidiary but might also be considered noncore.

Busch might yet fend off a takeover by combining with Mexican brewer Grupo Modelo, which would create a combined company too large for InBev to acquire. But if InBev wins and wants to sell the parks, it might end up with a less-than-premium price.

Competition Interest

There are two publicly traded theme park companies that would be considered candidates to buy Busch Entertainment: Six Flags and Cedar Fair. The three other potential buyers are part of large corporations: Walt Disney, General Electric's Universal Studios and Blackstone Group's Merlin Entertainments Group.

Ohio-based Cedar Fair paid $1.24 billion for the Paramount theme parks, including Kings Dominion, in 2006. Cedar Fair owns 11 amusement parks, seven water parks and five hotels. Its signature park is Cedar Point in Sandusky, Ohio.

Six Flags has been struggling with a heavy debt burden. The company's shares trade for less than $2, and it just did a big debt refinancing to try to clean up a troubled balance sheet. Cedar Fair still has the debt and challenge of integrating the Paramount parks.

"Neither of the publicly traded commuter theme park players are in a position to buy anything," said David Miller, an analyst at SMH Capital.

Disney and Universal don't typically try to grow by purchasing other companies, and they focus on destination resorts, rather than parks that are day trips, Miller said.

Disney has been rumored to be interested in Six Flags before, and it was never true because it doesn't fit the business, he said.

An additional issue with buying Busch is that its three properties in Orlando, Fla., compete for customers with Disney and Universal, so buying Busch could cannibalize their own businesses.

That might leave some unusual candidates -- or none at all -- as the only bidders left standing. Perhaps the most likely is The Blackstone Group, the private equity firm that's the theme park leader in Europe and has a few American parks. Other private equity firms could be interested, but getting bank financing is still very difficult.

A good Buy for Dubai?

Some analysts think that a bid might even emerge from Dubai, the Middle Eastern emirate that has inked a big deal with Busch.

Busch announced in February plans to add four of its theme parks -- Busch Gardens, SeaWorld, Aquatica and Discovery Cove -- in a partnership with the Dubai development firm Nakheel in 2012.

Busch is licensing the parks and will operate them for Nakheel on the Palm Jebel Ali, a palm-shaped man-made island. Dubai is running out of oil, and it's using its wealth to lay the foundations to become a big tourism hub that attracts a wide international base of visitors.

Gerner has worked in the Middle East. He said that countries there were generally more interested in worldwide name recognition or licensing theme park brands but that Dubai couldn't be ruled out. The investment would likely be more about learning how to cater to tourists than other buyers looking to squeeze out higher profits, he said. "If I was managing the Busch side of the sale, I would be intrigued by the possibility of a Dubai buyer," Gerner said.

The financial performance from the Busch parks over the past five years has been like clockwork. The profit margin for the entertainment division is higher than Busch's other lines of business. Revenues have grown at almost 8 percent to 9 percent for the past five years, with 12 percent profit margins. "Everyone thinks quite highly of the parks and the management of the parks," Gerner said. "The Busch chain is as stable as any theme park in the industry."

In 2007, Busch Entertainment accounted for 8 percent of the revenue and 6 percent of the profit for the parent company. The subsidiary has grown sales in the 8 percent range for years, growing 2007 sales by $94 million. Profits have also been consistently increasing.

Belgian analyst Kris Kippers, who covers InBev for Petercam SA, said Busch Entertainment was worth about $2.9 billion. Michael Branca, an analyst at Lehman Bros., puts the figure closer to $2.58 billion. The valuations for theme parks were higher in the late 1990s as Cedar Fair and Six Flags grew. "It was these two companies driving the value of those sales," Gerner said. "Without these two companies as potential bidders, your potential asking price comes into question."

Value Beyond Numbers

InBev might consider theme parks to be a noncore part of Busch that can be sold to generate cash to grow the beer business, but the parks have always been part of the Busch marketing machine. Any buyer would likely have to pay a royalty fee to retain the Busch name and icons like the Clydesdale horses. That could make the parks less profitable, but failing to do so might also diminish the parks' appeal. The elimination of the vestiges of Paramount irked some of the parks' enthusiasts, who complained that the rides lost some of their appeal when they were re-themed.

Analogous to what Paramount did with its parks, Busch uses them as a tool to help cement its lead in the marketing-heavy beer industry. Busch brands of beer are sold throughout the parks. It has used the parks as part of its campaigns against its competitors -- ironically, about their foreign ownership.

The financial returns have also come as a result of continual investment in new attractions -- and especially in maintenance and upkeep. An overly cost-conscious owner with an eye toward the short term might want to cut costs in these areas to get a higher return. "There's some question whether they would keep up with that," Gerner said. "That becomes a factor in all of this: Would the parks be as popular if they are no longer associated with a company that is known to do things in a quality way?"

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