Tag: Hill Path Capital

CHAPTER 1: Tools of the Trade -or- How Government Filings Can Offer Missing Pieces to a Puzzle

Some of my favorite tools when conducting research are documents filed with courts and with security regulators. It’s important to remember that when used alone, they do provide valuable information, but when used with other court and regulatory documents or with publicly available information, they can lead you in entirely new and unforeseen directions.

The Courts

Federal court document in the USA are accessible via PACER, which charges ten cents per page to access. However, some documents, including their attached exhibits, may involve hundreds of pages, and if you’re very invested in researching a case, as I often am, it may run you around $100 or more each month.

Municipal, state, and international courts often have their own systems for making documents available. Some are free, others require a payment. Some allow you to collect documents over the internet, while others require you to send a request and self-addressed return envelope by mail or to visit the courthouse in person. There are also a few courts, such as administrative law courts, where files are available only through Freedom of Information Act (FOIA) requests.

Securities Filings

Securities documents filed with the United States Security and Exchange Commission (SEC) are available free of charge through the EDGAR database. Other countries have their own regulatory agencies and databases for securities. As with court documents, the best information is often found in footnotes and attached exhibits.

The Possible Merger

For more than a year, I’ve heard from executives at both SeaWorld and Spanish-based park operator Parques Reunidos (operating in the United States and Australia as Palace Entertainment) that the two companies intend to merge and go private. Using securities filings from both the SEC and Spain’s Comisión Nacional de Mercado de Valores (CNMV), I’ll present some interesting findings that appear to support this claim.

I’ll start with two key personnel who have a deep understanding of acquisitions and mergers.

The incoming head of Human Resources

On July 24, 2019, SeaWorld announced that effective August 19, Sharon Nadeau will become the company’s Chief Human Resources Officer. (Form 8K, 7/24/19) According to the filing: “Ms. Nadeau 57, comes to SeaWorld Entertainment from Cerberus, Inc., where she was a Senior Advisor for Cerberus Capital Management, L.P and Cerberus Operations and Advisory Company since 2016.”

Cerberus Capital Management is an investment firm with assets in excess of $50 billion. It specializes in the purchase and mergers of distressed securities, which involves trading in companies close to or going through bankruptcy. Over the past decade, Cerberus’ involvement in the amusement industry has ranged from financing Apex Parks’ acquisition of fifteen properties from Palace Entertainment (Apex was co-founded by the late Al Weber, legendary former CEO of Paramount Parks and Six Flags) and a long-term ownership stake in Japan’s Seibu Holdings, whose properties include Yokohama Hakkeijima Sea Paradise. Rather than describe the park, I’ll just let the following collage from the park’s website speak for itself:

While the fact that Ms. Nadeau comes from a company involved in mergers and acquisitions is an important factor in this discussion, I’ll admit that I may be stretching my argument with regards to Apex and Seibu, although such evidence does show Ms. Nadeau departing a company involved in the acquisition and sales of amusement facilities and the financing of others to do so. It’s not a stretch to believe that Ms. Nadeau was hired by SeaWorld based on her expertise in human resources needs during such procedures.

The Game Master

Then there’s Walter Bogumil, who joined the company in June 2018 in the newly formed position of Chief Strategy Officer. Mr. Bogumil’s bio reads as follows: “Mr. Bogumil most recently served as Affinity Gaming’s Interim Chief Executive Officer. Before being appointed to that role in April 2018, he was Affinity’s Chief Financial Officer and Treasurer beginning in March 2015. Previously, he was Vice President, Financial Analysis, at Penn National Gaming from April 2002 to March 2015.  He has also held previous roles in the theme park and resort industries.” (Form 8K, exhibit 99.1, 6/6/18)

It’s not uncommon to hire executive management from outside industries as it tends to bring in new perspectives, and when I checked with a number of colleagues in the Vegas casino industry, Mr. Bogumil turned out to be very highly regarded. However, there is an important part of Mr. Bogumil’s career that was not disclosed in any of SeaWorld’s SEC filings, websites, or publicity materials.

In 2017, Bogumil, as Chief Financial Officer and Treasurer of Affinity Gaming, played a pivotal role in his company’s $580 million acquisition by Z Capital Partners (who also own Chevy’s Mexican restaurants). In his capacity as CFO, Bogumil’s signature appears on the SEC documentation (Form 8K, 2/1/17).

Not Directly

Now, I want to shift gears and look at the current relationship between SeaWorld and Parques Reunidos.

During SeaWorld’s recent Annual Shareholders Meeting, the question was raised if Parques Reunidos is considered competition. SeaWorld CEO Gus Antorcha responded: “I don’t think we consider Parques Reunidos a direct competitor, although they are in our industry.”

Since going public in 2013, SeaWorld has listed its core competitors as “Walt Disney Parks and Resorts, Universal Studios, Six Flags, Inc., Cedar Fair Entertainment Company, Merlin Entertainments Group Ltd. [and] Herschend Family Entertainment.” (Form 10Q, Exhibit 10.7, 5/9/18). On occasion, Hershey Entertainment & Resorts has been included on the list. But never, except for one place, has Parques Reunidos been mentioned as a core competitor.

The decision to include Herschend and not Parques Reuindos is an odd one. Herschend’s properties tend not to be in the same markets as SeaWorld’s. In fact, the only two properties that might be considered competitive in the same market are Wild Adventures in Valdosta, Georgia, which is pretty much a scaled-down version of Busch Gardens Tampa Bay, and an aquarium in Camden, Pennsylvania, a short drive from Sesame Place.

On the other hand, Parques Reunidos owns Dutch Wonderland, a historic family amusement park ninety minutes from Sesame Place. Soon to open at Dutch Wonderland is a new hotel themed to Cartoon Network properties.

In Abu Dhabi sits Yas Island, a resort featuring Ferrari and Warner Bros. branded theme parks and one of the world’s highest rated waterparks. All of these properties are managed by a Farah Experiences, a subsidiary of Yas Island’s developer, Miral Asset Management. Currently under construction, SeaWorld Abu Dhabi, a fourth park developed by Miral, is scheduled to open on Yas Island in 2022. Unlike the other Yas Island parks, SeaWorld Abu Dhabi will by operated directly by SeaWorld Entertainment.

Forty miles to south lies Yas Island’s biggest competitor, Dubai Parks and Resorts. Of the four parks there (The LEGOLAND theme park and waterpark are managed by Merlin Entertainments), two film-themed parks, MOTIONGATE Dubai and Bollywood Parks Dubai, are managed under contract by Parques Reunidos. As is Dubai Safari, the recently opened state-of-the-art zoo located seventy miles from Yas Island.

Gus Can’t Go to the Park

As mentioned above, there is one place in all the SEC filings where Parques Reunidos is specifically listed as a competitor – in CEO Antorcha’s own employment agreement (Form 8K, Exhibit 10.1, 2/5/19). This inclusion of Parques Reunidos into the Non-Competition Clause does not appear in the employment agreement with prior CEO Joel Manby.

It provides yet another clue as to the validity of the merger rumor. It’s common practice for companies to be included in non-compete clauses during periods of merger negotiations in an effort to ensure that management does not pass on vital information from one company to the other.

The Hill Path Clause

On the board level, it’s a different game.

When James Chambers was nominated as a second Hill Path board member at SeaWorld, he presented a letter that stated, in part: “….the Company agrees that we may communicate such information (including Confidential Information) to Hill Path and its partners, officers, directors and employees (“Hill Path Related Persons”), and to Hill Path’s outside legal, tax, insurance and accounting advisors (together with Hill Path Related Persons, each a “Hill Path Associate” and collectively, the “Hill Path Associates”)….” (Form 8K, Exhibit 10.4, 5/28/19).

When Richard Golding was appointed Chairman of Parques Reunidos in July, 2018, his bio read: “Mr Golding served as member of the Board of Directors and Executive Chairman of the Company from 2003 through February 2014, when he left the Company. The Board of Directors believes that Mr Golding’s extensive experience in the leisure park industry and his strong track record as Marketing Manager at Cadbury Schweppes, Chairman, member of the Board of Directors and Regional Chief Executive Officer at RJR Nabisco, and as former CEO of Parques Reunidos, make him the ideal person to hold the positions of director and Chairman for Parques Reunidos. Mr Golding is also currently First Vice Chairman of Distribuidora International de Alimentación, S.A. (DIA), and acts as an advisor at Advent International.” (CNMV, Composition of the Board of Directors, 7/17/18)

Shortly after Golding’s return to Parques Reunidos, his online bio on the company’s website had an additional position listed: “Operating Partner of Hill Path Capital”.

So here’s Hill Path Capital, controlling more than 1/3 of SeaWorld stock with its partners now serving as Chairmen of two different major theme park companies, both listed in the TEA/AECOM theme index as among the top 10 most attended chains in the world.

As long as SeaWorld is not in competition with Parques Reunidos, Hill Path’s representatives on the SeaWorld board can share information with Golding as a partner. I’m assuming that’s as long as Golding doesn’t share it with anyone outside of Hill Path.

But who’s keeping tabs?

Where to now?

My updated prediction on the merger:

  • Piolin, the partnership attempting to take Parques Reunidos public, has announced the acceptance period for stock purchase will run through Sept. 6, 2019. Piolin now has approval from all regulatory agencies on an international basis for the buyout.
  • The merger between Parques Reunidos and SeaWorld will likely take place between September and December 2019 to ensure that it’s complete before end of the fiscal year for both companies. Hill Path will end up owning around 15% of the combined company.
  • A new park licensing agreement for Chinese territories will likely be announced by March.

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.


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