Six Flags Entertainment (NYSE: SIX) announced last week the successful completion of its merger with Cedar Fair (NYSE: FUN). The merger of these two firms in the consumer discretionary sector creates one of the largest theme park operators in North America. It will compete with firms such as the Walt Disney Company (NYSE: DIS) and Universal Studios. Going forward, the combined entity will operate under the name Six Flags Entertainment. Shares will trade on the New York Stock Exchange under the ticker symbol FUN.
Let's examine what the combined company will look like and the advantages the company expects the merger to bring. Details on Six Flags' new leadership will be provided, followed by a review of the market's reaction and analysts' expectations so far.
Expected Benefits: A Bigger and Better Six Flags
Together, the two firms now operate 42 parks, and they have an annual attendance of 48 million people, based on 2023 numbers. A company presentation on the merger lists the last 12 months' revenue for the period ending in Q3 2024 as $3.4 billion. This accounts for synergies of $200 million that the firm expects to fully realize in the next three years. Listed as $826 million, free cash flow used the same assumptions.
In addition to these synergies, the combination also increases the geographic diversification of parks. Cedar Fair heavily concentrated its parks in the Midwest, while Six Flags concentrated its parks in the South. Now, parks are more evenly distributed across North America. This will help reduce fluctuations in revenue based on weather-related seasonal volatility.
The company also believes the merger will allow the firms to significantly decrease leverage. Within two years, the entity's net leverage, also known as its debt-to-EBITDA ratio, will decrease to 3.0x. As standalone firms, the figure came in at 4.8x and 4.1x for Six Flags and Cedar Fair, respectively.
The company also believes it will be able to drive long-term value in various ways through the merger. This includes cross-pollinating parks with sought-after intellectual property licenses each firm acquired separately, such as Looney Tunes, DC Comics, and PEANUTS. Combining customer bases gives the firm access to more data it can analyze to create better guest experiences. The firm will also be able to expand offerings to its season pass holders, creating increased loyalty.
Cedar Fair’s Management Taking Over is a Big Positive
Citigroup’s travel and leisure analyst James Hardiman had good things to say about the combination. He stated, "It's really the only deal of its kind this century, and I think it creates significant value."
He likes that Cedar Fair's legacy executives will take over the combined firm's management. Robert Zimmerman, Cedar Fair's CEO, will assume the same role. The same is true for the chief operating officer and chief financial officer of Cedar Fair.
Former CEO of Six Flags, Selim Bassoul, faced extensive criticism as the leader of the firm. In 2022, he attempted an aggressive strategy to increase revenues by raising prices. He hoped this would lower the attendance of lower-spending customers. In turn, decreased congestion would attract more families who spend more on concessions and other items.
His plan backfired tremendously, dropping attendance by 33% from 2021 to 2022, causing revenues to drop 21%. Over the same period, Cedar Fair’s performance was stellar. The company increased attendance by 38% and revenues by 36%. This stark contrast puts even more of a blemish on Bassoul’s errant decision. Shares of Six Flags were down 27% since Bassoul took over in November 2021.
Zimmerman has been Cedar Fair's CEO since 2017, signaling stability and indicating that shareholders were generally happy with this leadership. Since November 2021, Cedar Fair’s share price has been up 8%.
Going forward, Six Flags will need competent leadership to compete with large competitors like Disney. In 2023, Six Flags' net revenues grew 5% while Cedar Fair’s were down 1%. Disney’s “Experiences” segment increased net revenues by 16% in the same period.
Analyst Price Targets and Market Reaction
Since the merger, updated price targets for Six Flags have averaged $62.25, implying an upside of 20%. Since the two firms began trading as a combined entity, shares have been flat, not yet moving in line with analyst forecasts.
