Premier bows big

Stock offering bankrolls $1 bil for theme park

NEW YORK — Regional theme park operator Premier Parks Inc., which has agreed to buy Six Flags from Time Warner Inc. and Boston Ventures, raised more than $1 billion in a stock offering to fund the deal last week — almost twice as much as originally expected.

In a sign of investors’ enthusiasm for the fast-growing theme park operator, Premier’s stock skyrocketed 42% from the Feb. 9 announcement of the proposed $1.8 billion acquisition of Six Flags to Thursday’s pricing of the offering at $54 a share.

As a result, the stock offering, which had been expected to raise $500 million, raised just over $1 billion. Premier also sold $270 million worth of convertible preferred stock and arranged a combination of bank debt and public debt totaling $1.3 billion to refinance existing Premier and Six Flags debt. Premier stock jumped $3.25 to close Friday at $58.18.

Some of the extra cash raised from the bigger stock offering will go into the coffers of Time Warner and Boston Ventures, sources said. The sellers of Six Flags were originally to get $765 million in cash and $200 million in convertible preferred stock of Six Flags for the equity of the theme parks company (the rest of the purchase price is assumption of debt) but now the price will be paid as all cash. Time Warner, which gets about half, declined comment.

Many opportunities

More significantly, Premier Parks will have even more money to pursue further acquisitions. In its prospectus for the stock offering, the company noted that the U.S. regional theme park industry has more than 150 parks with more than 100 operators and “management believes that … there are numerous acquisition opportunities both in the U.S. and abroad that can expand its business.”

The Six Flags acquisition doubled the number of parks operated by Premier to 25; Thursday saw the closing of another acquisition — agreed to in December — which added six overseas parks.

But the parks operated by Six Flags were much bigger, generating substantially more cash flow (earnings before interest, taxes, depreciation and amortization) than those already owned. Premier said in its prospectus that cash flow for 1997 was $61.3 million, but if Premier Parks and the other recently completed acquisition are included, cash flow would have been $263 million for 1997.

Lehman Bros. analyst Larry Petrella said investors who have jumped into Premier Parks stock were “typical media and entertainment investors” focusing on the company’s strong growth prospects.

Petrella said Premier management had a good track record of improving earnings at parks it acquires, partly by better marketing and partly by improving operating efficiencies.

Paltry profits

Six Flags’ parks had operated at relatively poor profit margins for several years, reflecting a lack of experienced park management at the helm, Petrella noted. “There is a lot of room to improve the margins,” he added.

Premier Parks struck a deal with Six Flags to use the well-known brand name across all the company’s parks, which should help increase attendance everywhere, while the park operator also negotiated rights to use Warner Bros. and DC Comics characters and sell related merchandise at its U.S. and Canadian theme parks.

The park industry is attractive to investors because it’s difficult for new companies to enter and because parks generate a relatively stable cash flow. While attendance prices can be high at the “destination parks” run by Disney, most regional parks draw customers from the surrounding areas, and ticket discounting is more common — making it more affordable to families, Petrella said.

One big question which investors may start to focus on is whether Premier’s acquisition strategy will focus on Viacom’s Paramount Parks division, which operates five regional theme parks and a water park in North America as well as the recently opened “Star Trek Experience” attraction at a Las Vegas hotel.

Paramount Parks had cash flow of $89 million last year and is valued at about $1 billion, analysts said. People close to Viacom note the company has been expanding the parks division through ventures like the “Star Trek” attraction, suggesting Viacom may not be looking to get out.

Viacom declined comment.

And it isn’t clear whether Premier would be interested.

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