MERLIN Entertainments was today under intense pressure from its second-biggest shareholder, which wants the owner of Madame Tussauds and Alton Towers to take itself private, angry at the performance of the stock.
ValueAct, a San Francisco hedge fund, says the City is undervaluing the company and the business should take radical action. It said in an open letter: “[Merlin’s] share price is down 2.7% since the 2013 IPO despite a 35.5% increase in earnings per share. Simply put: Merlin has struggled as a public company.”
Merlin responded in a tone that suggested it is far from opposed to a management buyout or an offer from a bidder to take the company private. It said it “regularly considers all options for driving shareholder value”, that it has had talks with ValueAct and “intends to continue the constructive dialogue”.
The key issue will be the view of 30% shareholder Kirkbi, the investment vehicle of the family behind Lego. So far, they have yet to express a public opinion.
Other top shareholders include Marathon, Capital Group, BlackRock and Vanguard — all US players who may have sympathy with ValueAct. The activist investor is looking for a deal of 450p a share or £4.5 billion.
The view from the City is mixed: Peel Hunt agrees with the valuation but doubts “the board would agree to the debt needed for an MBO”. Morgan Stanley agrees that Merlin is undervalued. However, a recent note from HSBC argued that Merlin is not a bad business, but that it remains overvalued, setting a target price of 315p.
Today shares were up 4% at 346p which values the company at £3.5 billion.
ValueAct claims there is “significant private capital interest in partnering with the company”, a hint that a bid could emerge soon.
“Private ownership is simply better placed than current public shareholders to underwrite the investments Merlin must make and to align employee incentives appropriately,” said ValueAct.
Merlin insisted its present strategy to focus on strong brands and a global portfolio was the right one. There has been progress lately, it added, with the opening of seven indoor attractions, such as Sea Life centres, as well as 244 additional hotel rooms.
In 2015, two women underwent leg amputations after a crash on the Smiler ride at Alton Towers. The company admitted breaching the Health and Safety Act, and was fined £5 million.
