A US activist investor has called on Merlin Entertainments, the owner of attractions including Madame Tussauds, Legoland and Alton Towers, to seek a buyer to take it private, arguing it has underperformed as a publicly listed company.
San Francisco-based ValueAct Capital, Merlin’s second-largest shareholder with a 9.3% stake, has written an open letter to the chairman, Sir John Sunderland, saying it believes there is “significant private capital interest” in the company, which could attract a bid of about £4.50 a share.
Merlin is currently trading at about 346p – having been as low as 304p in October – valuing it at £3.5bn. ValueAct invested in Merlin two years ago, when the shares were trading above 500p and the business was valued at £5.5bn.
“Simply put: Merlin has struggled as a public company,” ValueAct’s chief investment officer Mason Morfit and partner Jake Welch wrote. “Private ownership is simply better placed than current public shareholders to underwrite the investments Merlin must make, and to align employee incentives appropriately.”
Merlin is the world’s second-biggest visitor attractions group behind Walt Disney, running 130 attractions in 25 countries, including the London Eye, Thorpe Park, Sea Life Aquariums, the London Dungeon and a range of Peppa Pig-themed parks through its deal with Entertainment One.
Its biggest shareholder is Kirkbi, which has 29.6% and is the investment company of the family behind Lego.
ValueAct said it has confidence in Merlin’s management and strategy but that the decision to float in 2013 may have been too soon in the growth plan.
“We believe the runway for building hotels, second gates and Legoland parks is robust, and the company is uniquely positioned as a global partner for intellectual property owners,” ValueAct said. “While Merlin obviously thrived as a private company, it may have come public too quickly, with too many investments left to make for a yield-focused market.”
ValueAct’s move sent Merlin’s shares 4% higher on Thursday, making it the top riser in the FTSE 100 index.
Merlin’s board responded to the open letter, saying that while it would continue “constructive dialogue” with ValueAct, it intends to continue to pursue its current strategy.
“The board regularly considers all options for driving shareholder value and has concluded that it remains in the best interests of all its shareholders to continue to pursue its current strategy to create a high-growth, high-return family entertainment company based upon strong brands and a global portfolio that is naturally balanced against the impact of external factors,” the company said.
“The board remains fully confident in the ongoing execution of Merlin’s strategy and that its successful delivery will create significant value for shareholders.”
