Six Flags' Diminishing Attractions


By Amy Tsao They may be on the goofy side, but the TV ads for Six Flags (PKS) amusement parks certainly stick in your mind. For some, the sight of the bald, dancing, bespectacled and elderly Mr. Six in his bow tie and antique bus might just be enough to inspire a yen for riding roller coasters and eating ice cream at one of the outfit's 21 theme parks.

Yet while those ads end with the trademark slogan, "It's play time!" the past several years have been anything but merry for the Oklahoma City-based theme-park operator. The market for fun turned decidedly bleak in the months after the September 11 terrorist attacks. And job insecurity persists in many households, even though the U.S. economy is growing at a moderate pace and unemployment is below 6%.

Plus, over the past two summers, weather has been wetter than usual, hampering ticket sales. Says Sander Morris Harris analyst David Miller: "These guys are victim of a lot of bad luck."

HAPPY MOUSE. Even so, two shareholders with their own impressive track records in the business world have shown fresh interest in the fortunes of Six Flags. On Aug. 30, Microsoft (MSFT) founder Bill Gates's investment company, Cascade Investment -- an 11.5% owner in Six Flags -- filed a document with the Securities & Exchange Commission, saying it's dissatisfied with Six Flags' performance and plans to push for operational and/or management changes.

The prior day, in a separate filing, multimillionaire entrepreneur Dan Snyder, owner of the Washington Redskins National Football League team, disclosed that between Aug. 11 and Aug. 30, he had bought 8.15 million shares, taking his holdings to about 9% of the struggling company. Six Flags' stock rose by about 3% after the high-profile announcements, closing at $5.65 on Sept. 1.

Perhaps Gates and Snyder will be able to get the parks humming again. After all, it isn't all bad news in the sector: Disney's (DIS) parks were in a slump in recent years, but have rebounded impressively in 2004. In the fiscal nine months ending June 30, Disney's parks and resorts business increased 17%, to $5.6 billion, vs. the same period in 2003. But Disney has an added advantage, since its parks are located in sunny Florida and California and enjoy nearly year-round traffic.

DEBT BURDEN. Six Flags, on the other hand, is still clawing for traction. Park attendance in the first half of the year was down 4.1%. So Gates and Snyder appear to have a challenge ahead of them in the short term. Revenues are hardly growing, with analysts seeing an increase of just 2%, to $1.06 billion, in 2004. And Six Flags will lose money this year, as it has every year since 1999. Analysts on average expect a per-share loss of 84 cents in 2004, not much better than the 86 cents of 2003. And after heavy expansion in the 1990s, Six Flags has some $2.5 billion in debt on the books.

It has taken some needed steps to improve its financial position, analysts say. It has refinanced debt, sold off underperforming parks, and reduced planned increases in expenses. In the first half of 2004, it also has managed to increase the amount of money customers spend by about 3.2%.

Along with seeking spots on the board of directors, Gates and Snyder are expected to prod Six Flags management toward a merger or asset sale, according to SEC filings. That makes sense -- but it could be difficult finding a merger partner, analysts say. For a company that has only $1 billion in annual revenues, "What kind of acquirer wants $2.5 billion in debt?" asks Miller, who rates the stock neutral.

BUMPY RIDE. The thing that would help the most is something Gates and Snyder can't control -- good summer weather in 2005. Assuming that the sun shines, the economy continues to improve, and Six Flags finds new ways to draw visitors (like bigger, faster rides), next year's revenues could show an improvement, says Standard & Poor's analyst Jason Asaeda. "With those three things, the company could get better top-line growth," he notes. For now, however, Asaeda continues to rate the stock avoid.

Asaeda knows as well as anyone that Six Flags investors haven't had to visit a theme park to get that roller-coaster feeling the last few years. They've just had to take a look at how Six Flag shares have been doing. And despite Gates and Snyder stepping into the fray, this may well continue to be a wild ride. Tsao is a reporter for BusinessWeek Online in New York


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