In a recent development, amusement park operators Six Flags (NYSE:SIX) Entertainment Corp. (NYSE:SIX) and Cedar Fair LP (NYSE:NYSE:FUN) are set to merge, creating an $8 billion enterprise expected to generate $3.4 billion in annual revenue. The combined entity will operate 42 parks and nine resorts under the Six Flags brand and FUN ticker symbol.
Following the merger announcement, Citi upgraded both companies to "buy", which resulted in a 3% and 4% premarket boost for Six Flags and Cedar Fair respectively. Analysts set price targets at $46 for Cedar Fair and $26 for Six Flags. Their valuation considers the standalone value of the companies, $120 million merger synergies, and a potential 25% upside in combined equity value equating to $900 million.
The merger aims to enhance the financial profile of the two companies, increase levels of demand, value, and spending, and establish a highly diversified footprint across two of North America’s iconic amusement park companies. Cedar Fair unitholders will hold 51.2% of the share capital in the combined entity.
Richard Zimmerman, CEO of Ohio-based Cedar Fair, will remain CEO while Selim Bassoul, Six Flags CEO, will become board chairman. The merged company will be headquartered in North Carolina but maintain operations in Ohio.
Despite the positive outlook following the merger announcement, Cedar Fair's shares dipped slightly to $36.96 during midday trading, reflecting a market cap of $1.9 billion.
Hardiman noted Six Flags' underperformance but suggested that it could improve under Cedar Fair management by raising the floor of its assets. He also recommended converting Cedar Fair's Master Limited Partnership (MLP) units into C-Corp shares to enhance liquidity.
Notably, one of Cedar Fair's properties, Knott’s Berry Farm, operates all-year round, which could contribute to the increased revenue projections for the merged entity.
InvestingPro Insights
Our InvestingPro Tips and real-time data indicate promising prospects for both Six Flags Entertainment Corp. (SIX) and Cedar Fair LP (FUN) following their merger announcement.
For Cedar Fair (FUN), the aggressive share buybacks by management and the company's profitability over the last twelve months, as indicated by our InvestingPro Tips, suggest a robust financial position. This is further supported by a market cap of $1.9 billion and a P/E ratio of 13.13, as per InvestingPro Data.
On the other hand, Six Flags (SIX) has shown a significant return over the last week, and analysts predict the company will be profitable this year. This is encouraging, especially considering the strong earnings that should allow management to continue dividend payments. However, the company's short term obligations exceeding liquid assets is a point of concern.
In terms of real-time data, Six Flags has a market cap of $1.87 billion and a projected fair value of $24.59, according to InvestingPro Data. Despite a negative PEG ratio, the company has shown a positive revenue growth in Q2 2023.
These insights, among hundreds of others, are available on InvestingPro, providing investors with a comprehensive understanding of their investment prospects.
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