China's Zhonghong Becomes Top SeaWorld Holder With 21% Stake (3)

(Bloomberg) -- China’s Zhonghong Zhuoye Group Co. agreed to acquire a 21 percent stake in SeaWorld Entertainment Inc. from Blackstone Group LP, becoming the embattled U.S. theme-park operator’s largest shareholder.

The Asian leisure and tourism holding company will pay Blackstone $23 a share, or about $448.5 million based on shares held at the end of December. That represents a 33 percent premium to SeaWorld’s closing price Thursday. The announcement sent the stock soaring.

The deal bolsters SeaWorld’s plan to restore growth by expanding internationally. The company announced a licensing deal in Abu Dhabi late last year to create its first park outside the U.S. Rivals such as Six Flags Entertainment Corp. have used similar deals to boost sales.

“Completion of the deal would bolster the argument for a long-term international licensing opportunity at SeaWorld akin to the international licensing growth story that has been very positive for Six Flags,” Barton Crockett, an analyst at FBR Capital Markets & Co., said in a note Friday.

SeaWorld, which owns 12 theme parks, including its namesake attractions, has battled negative publicity following the 2013 release of the documentary “Blackfish,” which argued killer whales shouldn’t be kept in captivity. After two years of declining attendance, the Orlando, Florida-based company replaced its chief executive in 2015 with Joel Manby, who formerly ran Dollywood. Manby ended whale breeding at the parks and is investing in more non-animal attractions, such as roller coasters and ocean-themed rides.

Manby said Zhonghong’s long-term investment reflects confidence in the company’s brand and a shared commitment to “protect wildlife and the environment.”

As part of the new relationship with Zhonghong, SeaWorld will advise its Zhonghong Holding Co. affiliate on the development of theme parks, water parks and family entertainment centers.

SeaWorld shares rose as much as 11 percent to $19.31, their biggest intraday advance in four years. The stock was trading at $18.40 at 12:48 p.m. in New York Friday.

The SeaWorld brand and expertise will help Zhonghong expand in China during a theme-park gold rush. But with already roughly 300 attractions in China, including some ranked among the world’s worst, competition to amuse China’s growing middle class is intensifying. Walt Disney Co. and Dalian Wanda Group Co. are among industry giants building new parks and travel destinations in China, while Six Flags is building a new water park adjacent to the first Six Flags-branded theme park in Haiyan.

While investors cheered the transaction, Chinese investments don’t always close, and that should temper enthusiasm, Citigroup analyst Jason Bazinet said in a note Friday morning.

Blackstone ‘Overhang’

With the Zhonghong transaction, Blackstone will no longer hold any stock in SeaWorld or seats on its board. At the end of last year, the alternative asset manager was the company’s largest holder with 19.5 million shares, according to Bloomberg data.

Blackstone has been exiting its long-held SeaWorld position since the IPO, Crockett said, and questions surrounding the disposition of its remaining stake in the company had been an “overhang.”

After the deal closes, SeaWorld will increase the size of its board to 11, with Yoshikazu Maruyama, president of Zhonghong Group’s American operation, and Yongli Wang, chief strategy officer of Zhonghong Group, taking seats, the companies said.

Also under the pact, Zhonghong won’t be able to sell its stake for two years, and must get the approval of independent directors to buy more than 24.9 percent of shares outstanding.

The transaction is expected to close in the second quarter.

(Updates with shares trading, analyst’s comment.)

To contact the reporter on this story: Paul Barbagallo in New York at pbarbagallo2@bloomberg.net.

To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Rob Golum

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