By Jerry Knight
Monday, January 23, 2006
Okay, so Redskins owner Daniel M. Snyder can't get his football team into the Super Bowl, but the guy sure knows how to make money on his new sideline -- the Six Flags amusement park chain.
Since Snyder launched his bid to take control of Six Flags last summer, the stock market value of the company has grown by more than $360 million.
Since the first of the year, Six Flags stock has gained 37 percent. And it has jumped every time Snyder announced another management move.
When Snyder seated three of his pals on the Six Flags board a couple of weeks ago, the stock jumped $1 in two days -- boosting the company's market value by more than $90 million.
Even last week's announcement that smoking will be banned in the parks was accompanied by a 27-cent pop in the stock, raising the value of Six Flags by an additional $25 million.
Amazingly, the stock even advanced in the midst of Friday's massive stock retreat, climbing 15 cents a share to $10.57. That's the highest it's been in more than three years.
What's impressive about the advance of Six Flags stock is that the shares have climbed steadily even though many traders cashed out as soon as Snyder took over -- without waiting to see what he does with the company.
They were simply playing the takeover trade, a pretty reliable way to make money on Wall Street. Six Flags shares were going for $5 and change in August when Snyder made his first move. The takeover traders bought the stock immediately and quickly saw it climb past $7. Many of them apparently cashed in back in late December, when there was heavy trading in the shares.
It looks as if that selling held down the price of Six Flags shares in the waning days of 2005, but after New Year's, the stock took off as investors lined up to take a ride.
Wall Street analysts can't claim credit for steering their clients to Six Flags. Only one big firm, Bear, Stearns & Co., has recommended the stock. The shares are rated "hold" or "sell" by the handful of analysts at smaller firms who follow the company.
The shares probably benefited from a plug they got Tuesday on CNBC from Mark Cuban, the mega-millionaire owner of the Dallas Mavericks basketball team. Cuban said he had "bought Six Flags -- that's my new one -- because I thought Daniel Snyder and Mark Shapiro can make . . . changes."
Shapiro, the former ESPN executive brought in by Snyder to run the theme-park chain, started making changes the minute he and the rest of Snyder's team took over.
Last week's smoking ban was more like a smoke signal. It was Snyder's way of letting people know that he intends to make the parks more "family friendly." It's not the moms and dads having a cigarette while waiting in line to take the kids on the roller coaster that he wants to get rid of; it's the young adults who hang out in packs, puffing.
As Washington Post staff writer Annys Shin has reported, Snyder has brought in new managers, hired a new advertising agency and apparently fired that strange little dancing man who appeared in Six Flags television commercials.
Two of Snyder's key moves have been to dispatch scouts on key missions -- to find licensing opportunities in the theme parks and to see how much unused real estate under and around the parks can be sold.
Savvy as he is, Snyder understands that you don't just sell cokes to the crowd, you sell Coca-Cola Co. (or PepsiCo Inc.) the right to be the Official Soft Drink of Six Flags. That's good for a few million bucks a year, and there are lots of other possibilities. Snyder's marketeers are said to be talking to Pizza Hut and Papa John's about becoming the Official Pizza of Six Flags.
You can bet that if Six Flags starts announcing more licensing deals, investors will hang on every news release.
Cleaning up the operation of what was generally regarded as a not-very-well-run company is one part of Snyder's Six Flags strategy.
The other part is restructuring the company's finances.
As the Bear Stearns analysts said, Snyder's takeover of Six Flags is "like an LBO without the BO."
In an LBO, or leveraged buyout, you borrow a lot of money -- that's the leverage -- to buy out a company. But Snyder didn't have to buy out Six Flags; he only offered to. And his offer last summer was just $6.50 a share. Six Flags executives said at the time that was a low-ball bid. With the stock trading today over $10, it's clear they were right.
Snyder essentially set a floor under the price of Six Flags stock by promising that if it fell below $6.50, he'd buy a big batch of it. That maneuver made the company a much more attractive investment, limiting investors' risk.
To many Six Flags investors, that guarantee alone was good reason to side with Snyder and vote to have him and his team take over the management of the business.
The debt that usually goes along with an LBO was already there -- $2.1 billion dollars' worth. Six Flags has so much debt, in fact, that it would have been difficult to do an LBO because the company couldn't generate enough profit to pay the interest.
Snyder has been around Washington long enough to remember the lesson of Woodward & Lothrop. The venerable department store went bankrupt and then out of business because real estate developer A. Alfred Taubman did an LBO that burdened Woodies with more debt than it could handle. Taubman was counting on paying off the debt by selling some of the Woodies stores, but his timing was bad. The real estate market tanked, he couldn't sell, and Woodies went under.
An imploding real estate market is one of the things that could go wrong for Snyder at Six Flags, because he, too, is counting on selling real estate to pay down debt.
The company has roughly 3,500 acres of land around its 30 parks that it doesn't need, Bear Stearns estimates. That land could be sold for about $300 million. In addition, Six Flags is close to selling AstroWorld in Houston and could get $100 million for it. The Six Flags park near Los Angeles could fetch $350 million to $400 million more.
Bear Stearns says the Six Flags real estate strategy is being developed by Snyder's partner Dwight C. Schar, who is a board member of Six Flags and a minority partner in the Redskins. Schar is also head of NVR Inc., the biggest home-building firm in the Washington region.
To aid in handling the real estate, Schar has brought in the Staubach Co., a high-powered national real estate consulting firm. Yes, that Staubach. Former football great Roger.
That's one of the appeals of investing with Danny Snyder: You get to drop as good a batch of names as anybody in Washington. Besides those mentioned already, there's Six Flags board member Harvey Weinstein, the Hollywood mogul (If you missed him at the Golden Globes last week, wait for the Oscars). And Bill Gates of Microsoft Corp., who is Six Flags' second-largest shareholder after Snyder.
Those names tell you Snyder knows how to build a team. What's happening to Six Flags stock shows he knows how to play the game.
Now, if he could just get the Skins into the Super Bowl, people around here might start to really like the guy.
Jerry Knight's e-mail isknightj@washpost.com.
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