Ardent sells off Main Event to focus on local theme park interests

[Brad2912]

The owner of Queensland theme park Dreamworld, Ardent Leisure Group, has dramatically sold off its US based Main Event business to rival Dave & Buster‘s in a $US835m (($1.1bn) deal that will leave it holding only local assets.

The move ends its one time hopes of building a global leisure empire that were sparked when Macquarie Bank was running the trust and forged into the US 16 years ago.

Leisure was hard hit during the coronavirus crisis but now its fortunes are bouncing back with Main Event recovering due to improving conditions in the United States where hospitality and restaurants are up despite outbreaks.

The deal may mark a corporate retreat by Ardent but had been in the wings for two years after US private equity firm RedBird took a minority interest in Main Event.

It will also sell out while Ardent says it will now focus on turning round its local theme parks.

Dreamworld and the entire Gold Coast market were slammed by the pandemic and closure of Queensland borders but are now trading better than during the depth of the pandemic.

Ardent and RedBird have entered into a binding agreement with Dave & Buster‘s to sell Main Event for $US835m cash.

If the deal goes ahead, Ardent will receive about $US487m in cash, as it sold off a share in the restaurant chain to RedBird in 2020. It will receive the sum for its 72.6 per cent stake in the business.

Ardent will use the proceeds to repay its outstanding debt facility to the Queensland Treasury Corporation and other costs, while pouring the bulk of the proceeds into its theme parks. It expects to return about $430m or about 90c a share to investors.

Ardent shareholders will vote on the transaction at a meeting later this year, subject to customary closing conditions including receipt of US antitrust approval

The Gary Weiss-led board recommended that Ardent shareholders vote in favour of the deal in the absence of a superior proposal and an independent expert concluding it is fair and reasonable and in their best interests.

The sale follows a strategic review undertaken by Ardent and RedBird about the future ownership of Main Event. The strategic review resulted in multiple offers being received and the Ardent board said the transaction was in the best interests of shareholders.

Ardent expects to retain about $150m of cash from the deal and after the proposed distribution to shareholders. This will leave it with no debt following the sale. “The cash retained will be used to support the ongoing growth and development of the Theme Parks business,” Ardent said.

The deal shows a valuation multiple of approximately nine time adjusted earnings for Main Event for 2021. It comes on the back of Main Event‘s strong performance as its highest ever trailing 12‐month earnings ever in that year.

Ardent will have a strong cash position to support the ongoing recovery of the business, fund continued investment in new major rides, pursue opportunities for unlocking value in the parks’ surplus land and accelerate growth in this business.

“The transaction reflects the significant value creation that has been achieved by Ardent and the Main Event management team, particularly over the past four years,” Dr Weiss said. Main Event expanded its centre footprint by over 30 per cent and more than doubled earnings.

He flagged the local parks were “poised to benefit from the significant investments made in the business and the reopening of Australia‘s economy and its international borders”.

https://www.goldcoastbulletin.com.au/business/ardent-leisure-unloads-usbased-main-event-in-11bn-deal/news-story/e7ec995812ea5ecbff201b9119efa2a6
 

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So how this reads - the profits from the sale, after paying down its liabilities/debts and shareholder payments, should be around $150m.

Hopefully we see that go into a concrete 3-5 year plan of investment. 

[Cactus_Matt]

Hopefully Dreamworld can invest in becoming the theme park on the Gold Coast again, it needs to spend big money on doing so though, they need to reinvigorate their younger kids area, put in a "world class" family water ride and eventually a new eye-catching roller coaster to steal the crowds away from Movieworld. It'll be a hard sell for them to do all that and spending the money considering Steel Taipan seems like its been underwhelming for getting people through the gate but they don't really have a choice at this point.

[Vidgamer]

For our Theme Parks in Australia this can only be a good thing. A debt free Ardent with surplus funds doubling down on Dreamworld really makes it seems that Ardent are highly highly confident of the position they find themselves in. This should mean continued investment in the park and the surplus land being used (or sold).

over $150 million in surplus funds should allow for decent new rides but also possibly indicates Ardent is highly confident of their future plans and the park under Greg Yong. 

[franky]

5 hours ago, Cactus_Matt said:

Hopefully Dreamworld can invest in becoming the theme park on the Gold Coast again, it needs to spend big money on doing so though

It does but it also needs to be careful in doing so. It doesn't sound like they have any other fall back options now if it doesn't work out.

[joz]

As a shareholder of Ardent leisure, its about time that my ongoing loyalty and unwavering support of that company be rewarded

 

Actually a surprisingly good deal. I knew there was a lot of value to be unlocked in main event but holy cash cow that's alright. Leaving the company with cash on hand and no debts also gives them every chance to succeed. I doubt you'd see every cent going into DW, but even without it there is enough capital there to get 2 or 3 really good rides in quick succession which gets them much closer to that critical mass needed to actually see a meaningful recovery.

[DaptoFunlandGuy]

So long as they don't blow their wad and have nothing left for ongoing maintenance, upkeep and operating costs....

[New display name]

@jozI don't know if I would be happy if the company I had shares with is now only capable of 1/6th of the profit it could earn before.   Ardent has already poured 100m into Dreamworld and the park is still empty.  It might take a whole generation before DW see guest like they did before the accident.  

[Slick]

9 minutes ago, New display name said:

@jozI don't know if I would be happy if the company I had shares with is now only capable of 1/6th of the profit it could earn before.   Ardent has already poured 100m into Dreamworld and the park is still empty.  It might take a whole generation before DW see guest like they did before the accident.  

Probably depends on when you bought shares.

[joz]

@New display name I can't speak for all investors, but I paid less for my Ardent shares than D&B are paying for just Main Event. At the very least you would think what's left will be stable for long enough to sell for a decent further profit.

[New display name]

@jozI am not saying you won't make money.   I’m pointing out Ardent shrinking could reduce the opportunity to make more money in the future.   It also leaves Ardent in a more vulnerable position having all their eggs in one basket and future investors may see Ardent as more of a risk now.

[DaptoFunlandGuy]

11 minutes ago, New display name said:

It also leaves Ardent in a more vulnerable position having all their eggs in one basket and future investors may see Ardent as more of a risk now.

My take on it is that they will no longer be distracted by two very different businesses operating in two very different markets. Every single person from the cleaner to the CEO will be focussed on the one thing for the first time in almost two decades - making their  Gold Coast attractions the best that they can be...

There's no parachute, no safety net - if they don't make it work they're unemployed. 

Yes, more of a risk, but now, less distractions and a helluva lot more motivation.

[Slick]

17 minutes ago, New display name said:

@jozI am not saying you won't make money.   I’m pointing out Ardent shrinking could reduce the opportunity to make more money in the future.   It also leaves Ardent in a more vulnerable position having all their eggs in one basket and future investors may see Ardent as more of a risk now.

Maybe, but the load-bearing assumption you've made there is that Ardent is actually interested in a future. At this point, if a stock-broker suggested Ardent for its long-term viability, despite the chairman being a well-known corporate raider, the restructuring of the US arm from the AU arm, the sale of the marinas, bowling centres, gyms and now Main Event, and despite the fact that the park's CEO role has a sale incentive in the contract, well.... i'd suggest finding yourself a different stock-broker.

[New display name]

That's your load-bearing assumption @Slickthat I am only having one thought on what this means for Ardent.

Another thought is that Ardent is now easier to sell.

Another thought is Ardent are about to go under and using the sale as a life raft.

Another thought is it's about time Ardent cut Main Event because it's been a drain on DW.

I can keep going if you want or should I let somebody else speak?

 

 

 

[DaptoFunlandGuy]

56 minutes ago, Slick said:

despite the fact that the park's CEO role has a sale incentive in the contract

Do we know for sure that that particular clause continued on with the appointment of a new CEO? or are we just assuming that based on the conditions that were applicable to the now-ousted guy?

[New display name]

21 hours ago, DaptoFunlandGuy said:

Do we know for sure that that particular clause continued on with the appointment of a new CEO? or are we just assuming that based on the conditions that were applicable to the now-ousted guy?

With nobody answering you, do we take it as we don't knows if the clause continued?

[DaptoFunlandGuy]

45 minutes ago, New display name said:

With nobody answering you, do we take it as we don't knows if the clause continued?

Yeah I don't know - although the Parkz article also stated this as fact, and Rich generally states if something is speculative. 

The only reason I asked (I don't keep up to date on things like this) is because my recollection was Osborne's contract was pre-Weiss, and with control of the board changing, their priorities or aims may have also.

Clearly the CEO's remuneration was made public at some point (I assume AGM?) so likely we will just have to wait until that happens to see if there are any changes...?

[Slick]

22 hours ago, DaptoFunlandGuy said:

Do we know for sure that that particular clause continued on with the appointment of a new CEO? or are we just assuming that based on the conditions that were applicable to the now-ousted guy?

The current CEO is on the same LTI as the former CEO. 

[DaptoFunlandGuy]

Alright, I'll do it.

Ardent-Leisure-2021-Annual-Financial-Report.pdf (ardentleisure.com)

Pages 14-18 details executive remuneration for executives. The long term incentives (LTIs) are awarded based on measurable growth and return on investment. The amounts are paid out 7 years after the grant date, or when the company sees a change of control or an IPO (theme park only).

So it would seem that there are still bonus incentives payable when the park sells, but it appears that those payments will eventually pay out even if the park doesn't sell, based on business growth. 

My understanding of the previous LTI was it was exclusively achieved on sale of the business, and the amount was calculated based on the sell price.

*I'm going off memory here, other than the 2021 report link above, so if any historic arrangements are the same \ different to what i've presented here i'm happy to be corrected - just going on what i recall.

[New display name]

So isn't the incentive a carrot to create growth rather than to sell Dreamworld?   The clause protects the executives if Dreamworld is sold before the incentives are due.

[DaptoFunlandGuy]

1 hour ago, New display name said:

So isn't the incentive a carrot to create growth rather than to sell Dreamworld?   The clause protects the executives if Dreamworld is sold before the incentives are due.

That's my take on it, yes.

[rappa]

Well I think the incentive is to create grown in the business value, and then sell it to reap the cash reward.

Now growth in value, and growth in the 'quality of theme park experience' are not necessarily the same thing, so I think it very much depends on the CEO's not financial goals as to what the incentive means to them, and by extension, the future of the park.

 

If you have a CEO in there that's all about pocketing as much cash as possible and then spring boarding onto the next well appointed corporate gig, it's going to be grow value as fast is possible.

But if you have a CEO that's actually pretty happy with the position they have, want to stay in it long term for the lifestyle and personal interest aspects that come with it (ie likes theme parks, wants to live on the Gold Coast, etc) we're more likely to see long term material improvement in the offering from the Theme Park.

 

I can't speak to, and won't speculate the personal motivations of the current CEO, but I think the above factors will very much determine how we see thee companies new found cash is spent.

[DaptoFunlandGuy]

^A very good and fair assessment. Likewise I don't think anyone can speak as to the CEO's intentions, but I think we'd all like for him to settle in for the long haul rather than make a quick buck.

 

(For anyone who can't wade through the Annual documents, the precise wording of the LTI is as follows:)

Noteworthy is that Main Event and Theme Parks are calculated differently - with ME calculated on Equity value and Theme Parks calculated on Enterprise Value.

Note also Greg Yong is now listed at 2% after assuming the role of CEO.

[New display name]

@rappaDoes spending months restoring central park station show growth in value or growth in the quality?

 

[rappa]

I'd say that's growth in quality in my book

[New display name]

I agree.

 We probably have 2 factors in play here.  The current CEO wants to keep his position if DW is sold, and the major investors would be happy for DW to be sold if they walked away with money in their pockets.