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Kenversations: Blackstone Wants to Unload Universal Orlando
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by Ken Pellman (archives)
March 23, 2011
Ken looks at all the ramifications of Blackstone's desire to sell their stake in Universal Orlando including all the parties (Disney?) that could be interested.

Two years ago, what were then the Anheuser-Busch theme parks (Sea World, Busch Gardens, etc.) were up for sale, and I wrote about who might and buy them and why.

This is what I wrote here:

I can salivate at the thought of Disney getting a hold of the parks – especially the Orlando parks - but I think these are more likely scenario elements:

Blackstone ends up with the Orlando, San Antonio, and San Diego parks, grouping them with Merlin Entertainments (and thus Legoland), and Universal Orlando (NBC-Universal may reduce its stake, giving Blackstone majority ownership).

Candover Investments/Parques Reunidos may get a stake, or may end up with the Busch Gardens parks.

Busch family may take a stake.

Busch Gardens and neighboring water parks may end up with Cedar Fair or Six Flags.

Some of that happened… kind of. (Some of it could still happen.) Not surprisingly, private equity Blackstone Group bought them. Along with its other holdings, including half of Universal Orlando, it looked like Blackstone was poised to form a formidable themed entertainment empire offering a full alternative to Disney, especially in Florida. They are even opening up a Legoland. But rather than integrating its theme park holdings, Blackstone has made a formal offer to sell its half of Universal Orlando to the owner of the other half, NBCUniversal, which Comcast recently acquired.

NBCUniversal has until June 12 to agree to buy. If it doesn't buy, Blackstone can seek another buyer to buy the whole thing. What I find interesting is the contractual stipulation that allows the outside offer to be as low as 90% of the resort's value, based on the value implied by Blackstone's offer. Would Blackstone really force NBCUniversal to sell so that they themselves can get 90 cents on the dollar for their own stake? Doesn't that stipulation give Blackstone an incentive to set a high price in their offer to NBCUniversal?

The Wizarding World of Harry Potter has been a popular renovation + addition to the Islands of Adventure park, drawing crowds, acclaim, and merchandise (and Butterbeer) sales. So perhaps Blackstone is looking to "sell high" and cash in on this? Of course, given the economy, selling high may not be what it would be at another time.

As Jason Garcia's Orlando Sentinel article wrote here:

The timing of the offer is no accident: Blackstone's investment has never been worth more than it is now, with Universal Orlando in the midst of the strongest financial run in its history. The two-park resort reported record attendance, revenue and profit during the second half of 2010, following the mid-June opening Wizarding World inside its Islands of Adventure theme park.

Universal drew 11.2 million visitors in 2010, up 20.3 percent from a year earlier. And the resort's 2011 attendance is up 50 percent so far this year, the resort disclosed this week.

Does someone else - who is in a position to make an offer - want half or all of Universal Orlando? Will NBCUniversal increase its stake, reduce its stake, or get out entirely? Having just completed its majority acquisition of NBCUniversal, perhaps Comcast, which was mostly interested in NBCUniversal's media content, will be more likely to want NBCUniversal to sell its share of the resort.

As Garcia's article notes, the least complicated scenario would also avoid a lot of uncertainties that could be trouble for the resort - NBCUniversal buys out Blackstone.

What uncertainties could there be?

Warner Brothers (Time Warner) may "cancel Universal's rights to Harry Potter" if NBCUniversal reduces or completely sells its stake, and either way, Warner's requirement is that NBCUniversal manage the resort. I think this was a very smart move on the park of Warner Brothers (and, I'm assuming J.K. Rowling). How many times have we seen theme parks or attractions therein be allowed to deteriorate in show quality, operation, and maintenance after the initial buzz dies down?

I'd like to know the stipulations of Marvel's contracts with Universal, especially since Disney now owns Marvel. What would be the best outcome for Disney?

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