A U.S. activist investor wants to push Britain's biggest theme park owner off the stock market, saying it would be worth more in private hands.
Shareholders in Legoland and Alton Towers operator Merlin Entertainments have had a rocky ride since the Danish family that owns the Lego toy brand listed the company in 2013. Terrorist attacks and the U.K.'s European Union exit have clouded prospects for a business that relies on steady growth in visitor numbers to turn a profit on heavy investments.
ValueAct Capital said in an open letter to Merlin's board last week that it needs to spend more on new hotels and Legoland parks, which is hard to do as a public company when returns on capital are falling. It pointed to recent analyst downgrades that sent the shares tumbling.
ValueAct said Merlin, which also owns tourist attractions including the London Eye and Madame Tussauds, could fetch a price a higher stock price in a public-to-private sale. Merlin shares rose as much as 6.7% in London late last week, giving the company a market value of about $4.5 billion.
"Put simply, Merlin has struggled as a public company," ValueAct President Garrison Mason Morfit wrote in the letter to Merlin Chairman John Sunderland. "Private ownership is simply better placed than current public shareholders to underwrite the investments Merlin must make."
Merlin's board shot back, saying in a statement it had held talks with ValueAct and still believed its own strategy would bring shareholders significant value.
More public companies are being taken private thanks in large part to the swelling cash reserves of private-equity bidders. Last year, the number of public-to-private deals hit its highest in more than a decade, according to Bain & Co.'s annual private equity report.
Parques Reunidos, a Madrid entertainment operator, last month attracted a bid from a group of investors.
ValueAct bought into Merlin in 2017, the year its shares plunged as terror attacks in London and Manchester deterred tourism, and now owns 9.3% of Merlin's stock. Danish billionaire Kjeld Kirk Kristiansen's holding company Kirkbi Invest A/S owns 30%. Its press department declined to comment.
ValueAct's Morfit wrote that Merlin has lowered long-term incentive plans for management, which could be harming the ability to retain talented staff.
"Years of continued share price underperformance can be demoralizing and destabilizing for employees," he added.
Information for this article was contributed by Amy Thomson and Christian Wienberg of Bloomberg News.
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