(Bloomberg)—The owner of Legoland theme parks aims to go private in a $6.1 billion buyout, seeking to invest more in worldwide expansion and attract new fans of the plastic bricks in markets such as China.
Merlin Entertainments Plc said Friday that the Danish family behind the Lego empire agreed to buy the company for about 4.8 billion pounds in a joint offer with private equity firm Blackstone Group LP and Canadian pension fund CPPIB. The deal continues a run of blockbuster private equity transactions in Europe as cash flows into buyout funds.
The descendants of Lego founder Ole Kirk Christiansen are moving to increase their involvement in the theme park business, which the family sold off to Blackstone in 2005. Merlin has been aiming to double its Legoland network even as debt swells and tourist visits slow down.
The buyout “will be very supportive of the development of the Legoland brand,” Merlin Chairman John Sunderland said in a phone interview.
Founded in 1999, Merlin runs more than 120 attractions in 25 countries under formats including Sea Life and Peppa Pig. Since Merlin acquired the rights to Legoland 14 years ago, the company has built a network of eight parks under that moniker in locations including Florida, Dubai and Malaysia.
Merlin has said it sees room to increase the number of Legoland parks to 20. The company has doubled the level of capital spending in the past five years, shelling out 332 million pounds last year as part of a long-term expansion plan through 2030.
Merlin Debt
That has weighed on Merlin’s debt, which has swelled to 1.2 billion pounds. Both Standard & Poor’s Financial Services and Moody’s Investors Service have junk ratings on the borrowings.
Investors had pushed the company to consider a sale, saying it would be worth more in private hands, where owners can take a longer view on capital outlays. The Merlin bid is one of several recently in which buyout groups have moved to retake control of a company they previously owned, with targets getting scarcer and cheap financing readily available. After the 2005 deal, Blackstone led a 2013 initial public offering of Merlin.
ValueAct Capital, which also lobbied for change at Britain’s Rolls-Royce Holdings Plc, last month sent an open letter to Merlin’s board saying that it needs to spend more on new hotels and Legoland parks, which would be hard to do as a public company. The activist investor, which rarely comments publicly on its investments, has accepted the offer.
Buyout speculation has helped lift Merlin shares this year
Merlin shareholders would receive 455 pence per share, a premium of 15% over the closing price Thursday. The shares rose 14% to 450 pence Friday morning in London.
The Merlin bid is 37% higher than the closing price on the day before ValueAct’s letter. It values the company at about 12 times Merlin’s 2018 underlying earnings before interest, taxes, depreciation and amortization.
“We regard this as a very attractive offer,” Chairman Sunderland said. The bidders made four unsolicited approaches, the first of which was in May before ValueAct’s letter, he said.
Merlin Entertainments has had a number of setbacks in recent years, including a 5 million-pound fine following a 2015 accident at its Alton Towers theme park in the U.K. that injured customers on one of its rides. The Brexit vote a year later hampered its growth potential. A Legoland being built in Goshen, New York, has suffered from regulatory and construction delays.
The company also oversees attractions such as Peppa Pig World of Play and the Coca-Cola London Eye. The company also plans another Legoland in South Korea and is looking for sites in China, where it would like to run three by 2030, Sunderland said.
Private-equity buyouts targeting European companies and announced this year have totaled $43.4 billion, according to data compiled by Bloomberg. Activity has accelerated with recent transactions like KKR & Co.’s move to buy out minority shareholders in German publisher Axel Springer SE.
Unspent Cash
The private equity industry -- including real estate, debt and venture funds -- is sitting on about $1.4 trillion in unspent cash as institutional investors pour client money into funds seeking returns, according to data compiled by Bloomberg.
Takeover speculation has helped propel Merlin’s stock in recent months. Shares of the Dorset, England-based company were up 24% this year through Thursday’s close.
Blackstone led an investor group including the Kirk Kristiansen family that owned Merlin for eight years prior to a 2013 initial public offering. The family, via investment vehicle Kirkbi, still owns a stake of almost 30% and would increase that to 50% via the buyout.
“The backing of an anchor shareholder, Kirkbi, would seem to us to limit the chance of a successful counter-bid,” Morgan Stanley analysts said in a note.
--With assistance from Thomas Pfeiffer, Christopher Palmeri, Lisa Pham, Sarah Syed and Nick Turner
To contact the reporter on this story: Thomas Mulier in Geneva at [email protected].
To contact the editors responsible for this story: Eric Pfanner at [email protected]; John Lauerman
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