The Other Side of the News marine life park edition part one: SeaWorld’s new owners

seaworld china

There are a lot of things I want to cover today that aren’t related to marine life parks, but I want to get these three stories out of the way while they’re still relevant. I’ll have a separate post towards the end of the month covering Warner Bros World Abu Dhabi, Two Bit Circus, California Trail at the Oakland Zoo, and new coaster experiences at Europa-Park and Liseberg. Today’s post will be split into three different ones posting throughout the day. And now, some breaking news.

SEAWORLD: INCREASING NUMBERS FROM THE OUTSIDE, FEWER NUMBERS ON THE INSIDE

For the first half of 2018, SeaWorld reported increased attendance and revenue (although there was actually a loss in revenue for the first quarter due to severance payments for a number of executives). The company has gone back to its roots and is operating its destination parks in Florida and California as if they were regional parks, pushing annual passes in the local market and building up events year round to pull those pass-holders back in, which increases both attendance and per cap spending in the parks.

The policy of adding a new attraction or show every year in each park is one that has proven successful for both Six Flags and Cedar Fair, again promoting return visits, which lead to increased annual pass sales. The increased regional attendance has filled the void created by a loss of tourism from foreign territories in the prior few years.

In the company’s filing with the SEC were a few juicy morsels. Here are a few of them:

On February 27, the day after he resigned, Joel Manby received a lump cash payment of $6.7 million. Yeah, that’s a lot of money for a company trying to cut costs. But I’m not surprised. The annual report’s exhibits include an amendment to the contract for Denise Godreau, who left the company after just over a year of employment as the Chief Marketing Officer. The amendment offered her up to $2 million to purchase a house.

These next two come straight from the 10Q. We’ll be addressing this later today, when I look at Thomas Cook, PETA, and the ethics of animal rights and welfare:

“Negative publicity can also impact our relationships with our business partners and ticket resellers. For example, in July we were informed that one of our ticket resellers in the United Kingdom will discontinue selling SeaWorld-branded tickets beginning in July 2019. Although we do not expect this decision to have a significant impact on our business nor do we currently consider this to be a material trend, we continue to monitor any such items that could impact attendance trends. As a reminder, historically, aggregate attendance from the United Kingdom represents approximately 5% of our total annual attendance.”

But first, I’m going to address this:

“We are exposed to the risk of loss in the event of non-performance by such strategic partners or other counterparties. Some of these counterparties may be highly leveraged and subject to their own operating, market and regulatory risks, and some are experiencing, or may experience in the future, severe financial problems that have had or may have a significant impact on their creditworthiness. For example, in April 2018, it was reported that an affiliate of ZHG Group was experiencing financial distress. The inability of affiliates of ZHG Group to pay amounts due to us or otherwise fulfill their obligations to us under their agreements with us, including the ECDA and/or the CDSA, could have an adverse impact on us. In addition, the sale or transfer of our common stock owned by affiliates of ZHG Group, or the perception that such sales or transfers could occur, could harm the prevailing market price of shares of our common stock.”

So there are two companies named Zhonghong.  One is Zhonghong Zhuoye Group (ZZG), a private investment firm. The other is Zhonghong Holdings Group (ZHG), a publicly traded real estate development and tourism company. Both are in China. ZHG has the license to develop SeaWorld parks in China. ZZG owns Blackstone’s former 21% stake of SeaWorld Entertainment.

Zhonghong Zhuoye holds a substantial amount of stock in ZHG and the financial woes of the latter greatly impact the stability of the former. On April 17, I reported the following on the ThemedReality/Final Days of Conventional Wisdom Facebook page.

Some news on Zhonghong Holdings, the company developing SeaWorld-branded parks in China. Zhonghong Holdings predicts an expected loss for its first quarter (Jan 1 – Mar 31, 2018) of 300 million yuan (US$47,731,500). This is in comparison to the same period last year, which saw a profit of 8.95 million yuan (US$1,424,437.25 based on today’s exchange rate). For those of you not adept at math, the ThemedReality Computronic Gizmo computes that to be a staggering decrease of 3451.96% for first quarter profits from 2017 to 2018.

Here’s more fun with numbers. Zhonghong Holdings also released an amended estimate for fiscal year 2017 (Jan 1 – Dec 31) of a loss of 248 million yuan (US$39,463,000), down from a 2016 profit of 157 million yuan (US$24,990,475). The ThemedReality Computronic Gizmo computes that to be a drop of 1679.13%.

So questions have arisen among some of the card-carrying members of the ThemedReality Universal Team of Helpers (TRUTH) as to whether or not Zhonghong Holdings will be able to pay off its loans, due within two years, for its 90.5% stake in British tour operator Abercrombie and Kent. The loans consist of a US$77.5 million loan from Zhonghong Zhouye group, a major Zhonghong Group shareholder (whose shares in the company keep getting frozen by Chinese courts) and the owner of a 21% stake in the US theme park company SeaWorld Entertainment, and another US$335 million in interest bearing loans from non-Chinese banks. The company’s lack of profit precludes it from using earned revenue to pay of the principal on the loans.

On the same day, April 17, I also reported:

According to the ThemedReality Computronical Gizmo, Hill Path Capital now owns just over 28% of SeaWorld Entertainment, which, according to the ThemedReality Computronical Gizmo, is also more than the 21% stake that Zhonghong Zhouye Group purchased from Blackstone. Hill Path Capital is the investment firm of SeaWorld board member Scott Ross (the investment banker, not the famed harpsicordist). At Apollo Global Management, Ross played key roles in the acquisition of both Chuck E Cheese and Great Wolf Resorts, both of which were turned profitable and then sold off by Apollo (a corporate version of house flipping). Then again, the ThemedReality Computronical Gizmo is an abacus held together by duct tape….so there’s that…

Although the proxy material sent out by SeaWorld to its shareholders eight days after my Facebook post stated that Hill Path owned 15.3% of common stock, a small footnote indicated that SeaWorld’s figure was based on a November 2017 filing. If my figures are correct, Hill Path is now the largest shareholder of SeaWorld Entertainment and the staff layoffs that took place the day after 2nd quarter earnings were announced is a strategy straight out of the Apollo playbook.

One thing that differentiated this staff cut from others is that it wasn’t simply a matter of eliminating one individual and consolidating their responsibilities into the duties of another just to save money.  This one was very well thought out (the advantage of having a Chief Strategy Officer onboard, it seems).  Quite a few middle managers were eliminated and the process of parlaying information and data between the top and bottom of the heirarchial personnel structure has been streamlined.

This is usually done in anticipation of a sale, as an efficient HR structure is more appetizing to potential suitors and minimizes issues with staff integration during an acquisition or merger.

A number of my contacts in Hong Kong and China have advised me to expect an announcement within the next week or two by Zhonghong of a sale to Hong Kong-based investment firm Pacific Alliance Group (PAG).  However, I’m hearing different details as to what that sale entails.

In one scenario, PAG purchases Zhonghong Zhyoue’s shares in Zhonghong Holdings. This is a risky move based on three factors:

  1. Chinese courts have frozen ZZG’s shares in ZHG from being traded.
  2. The shares are basically worthless.
  3. It was announced yesterday (August 14) that Chinese regulators were investigating ZHG for filing fake financial records.

More likely, PAG could purchase ZHG assets, which include the luxury tour company Abercrombie & Kent, some nice real estate, and the exclusive SeaWorld license for China.

Most likely is this scenario, which is based on the highly probable belief that ZZG may have missed one or more escrow payments to Blackstone and defaulted on their contract for the stock sale.  If this is the case, then the 21% stake of SeaWorld that ZZG owns is being transferred to PAG.  And if Hill Path sells its shares to PAG, then PAG will end up owning almost half of SeaWorld.

And there’s one other little surprise. CLICK HERE

That’s right. If it’s scenario three, we’re back at the beginning.

Still to come: Marineland smuggles a pair of belugas to China and PETA’s mouthpiece gives Thomas Cook immunity

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