By Annys Shin
Washington Post Staff Writer
Saturday, August 20, 2005
Redskins owner Daniel Snyder made his fortune as a relentless ad salesman. But his gambit to gain control of debt-ridden theme park company Six Flags Inc. could be his toughest sell yet.
Snyder's Wednesday filing with the Securities and Exchange Commission was just the first step in what is likely to be an extended battle as Snyder tries to persuade Six Flags shareholders to turn their company over to his handpicked team. The current management could fight back with a variety of tactics, and experts said yesterday that the matter is likely to end up in court.
"Neither Snyder nor the company's best offers are on the table at this point," said Joseph A. Franco, who teaches securities law at Suffolk University in Boston.
After saying on Wednesday that they would review Snyder's proposals for the company, Six Flags executives have been mum about their plans.
But they have a number of options to try to thwart Snyder, securities law experts said.
Snyder already is having to work around what he has termed a "poison debt" provision that would allow creditors to demand immediate payment of more than $2 billion in loans if his stake in Six Flags becomes too large.
Six Flags management could also strengthen "poison pill" provisions that would dilute Snyder's holdings of Six Flags stock by putting more shares into circulation as his stake increases.
Snyder made his initial proposal for control of Six Flags in the Wednesday filing, in which he outlined his ideas for reviving a company that over the past several years has lost millions of dollars and much of its stock value.
After first investing in the company a year ago and making several proposals that were rebuffed by Six Flags management, Snyder wants shareholders to make him chairman of the board while ousting chief executive Kieran E. Burke and others. He wants outgoing ESPN programming chief Mark Shapiro installed as chief executive and local home builder Dwight C. Schar, chairman of McLean-based NVR Inc., appointed to the board of directors.
In recent SEC filings, Six Flags management appeared to be preparing for Snyder's move. Last fall, the company adopted debt and stock provisions that it said in SEC documents "could be used to discourage, delay or prevent a change of control." In late July, the board approved severance packages for several top executives in the event they are fired or someone else gains control of the company.
Along with adopting more rules designed to prevent a takeover, the theme park company managers also will have to persuade shareholders to vote against Snyder's proposals or at least ignore them, said Rajesh K. Aggarwal, a finance professor at the University of Minnesota's Carlson School of Management.
Six Flags management and Snyder will be battling over the loyalties of a handful of institutional investors. The company's top five shareholders, including Snyder, control 44 percent of the roughly 93 million shares outstanding.
Snyder may have a natural ally in Six Flags' second-largest shareholder, Cascade Investment LLC, an investment company owned by Microsoft Chairman Bill Gates. Gates's Six Flags shares have lost about half their value -- a drop of about $77 million -- since he bought them in the late 1990s, and Cascade said in an SEC filing last year it was "increasingly dissatisfied" with the performance of Six Flags.
Snyder may have a harder time winning over mutual funds such as Dimension Fund Advisors and Wallace R. Weitz & Co.
"Institutional investors like mutual funds are not activist. They tend to just sit by," said merger expert Patrick A. Gaughan, president of New York consultancy Economatrix Research Associates Inc. "If anything, they typically side with management at the end of the day."
Experts predicted that Snyder and Six Flags will probably end up in court. Whether or not the company prevails, litigation could buy time for other strategies, such as arranging for a bailout by an investor friendlier to the current executive leadership.
Such "white knights," however, are hard to come by, said Gaughan. "It's tough to convince companies to spend a lot of money on a company they weren't thinking of buying in the first place," he said.
One alternative, Gaughan said, is to find a friendly investor who will at least buy shares to keep them out of Snyder's hands.
Gaughan said that even if Snyder does not end up sitting at the head of the boardroom table, "the odds are that there will be big changes in next six months."