Investors again call for sell-off at Six Flags
Theme park fans have learned what to expect from Six Flags. You're getting roller coasters, cheap annual passes, and high prices inside the parks to make up for those cheap annual passes.
And if you look at the company outside the parks, you will come to expect shaky financials and regular calls from big investors for sell-offs.
So longtime Six Flags fans will express exactly zero surprise at this week's Wall Street Journal report that activist investor Jana Partners is demanding that Six Flags explore a sale.
Jana is the firm that last year brought in Travis Kelce as a celebrity spokesperson for the chain, after Jana bought a reported 9% stake in the company. That's your pump, and the proposed sale would be the dump.
Except Six Flags' stock price is down 43% in the past year, so Jana's call feels more like cutting a loss than cashing in. Perhaps by calling for a sale, Jana can gin up a little merger & acquisition speculation to drive the FUN stock price? That might be working. It's up 2% today.
Here's the problem with Six Flags - debt. Interest charges on the company's nearly $5 billion debt are wiping out its profits. Pandemic debt pushed the old Cedar Fair and Six Flags companies to merge, in the hopes that operational efficiency would help the new company better manage that debt.
Six Flags has closed or sold parks in an effort to get profitable, and while its individual remaining parks are making money, that's not enough to pay off its massive debt. Other investors have urged the company to sell its real estate to cover the debt, but that would leave the company saddled with ever-increasing rent payments. Basically, a real estate sale would be swapping one crippling financial burden for another one. (Real estate sell-offs are one of the main ways that private equity companies devour and kill the businesses that they purchase.)
Jana lacks enough shares to force Six Flags to do anything, but even if Jana finds a way to cash out, another activist investor will take its place so long as Six Flags remains a publicly traded company with a valuable real estate portfolio and a heavy debt load.
So what's the path forward for Six Flags? Unless the company wants to consider yet another go through bankruptcy court, it's likely a sale of more parks. But a sale does not happen if a seller cannot find a buyer.
That's the concern for theme park fans. If Six Flags cannot find a park operator willing and able to buy what the company is looking to sell, that leaves Six Flags to explore sales to commercial property developers who would tear down and redevelop park sites. Sorry, Six Flags America fans.
The longer that your home park has gone without major new attraction construction, the more worried that I would be as a fan of that park. Ultimately, Six Flags has the assets to become a financially successful company that serves well millions of amusement fans. But Six Flags has to find a way to escape the financial liabilities that are preventing it from getting there.
Replies (2)
Activist investors get in the way all the time..
Lets look at Southwest Airlines - There long time Motto was - bags fly free....
And Sit where you want.....
Then some loudmouth activist got in the way - forced the board of non-directors to make changes. Now SW is like any other airlines.
Paid bag fees, pay for up front seats.....Pay to board early.
Just sell the stock if you don't like it anymore.
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I'm not going to defend much in the way that Six Flags has done business, but more sell-offs or leveraging their real estate portfolio would absolutely cripple the company. They've already smartly jettisoned most of the dead weight through the Enchanted sale, which appears to have worked well for both parties. There's really not much left to kick to the curb unless they were to consolidate some of their regional operations in Texas, California, and Ohio - and as Robert notes, someone still has to want to buy the parks that would be sold for price that makes sense.
I do think their current strategy of slightly increased pass prices and limiting/overpricing some of their loss leaders (like unlimited season dining and unlimited season FastLane) will help generate more revenue in 2027. However, the effects of those policies won't be seen until this time next year, so SF will have to keep vocal anti-investors like Jana at bay until they can demonstrate progress. That's what I find confusing about Jana's investment into the company. The theme park industry is all about the "long game" with investment cycles that can take years to bear fruits. This is not like a normal construction/development project where individual stages can be independently financed and cashed in when the completed project is sold or allows for investors to exit. In theme parks, there is no exit when a project is completed, because the value of the investment has to be recouped over years of incremental sales (while also being offset by years of ongoing maintenance and operations).
It would be interesting to see how SF justifies their investments on their balance sheet knowing that their per-cap hovers somewhere around $60, and they're spending $100+ million every year on capital improvements and who knows how much on labor, marketing, overhead, and that crippling debt. It's a never ending cycle that someone need to figure out how to break, because simply selling assets or real estate will just make things worse.