Gates and Snyder Have a Hand in Six Flags' Future

[Warsai]

If Six Flags management wasn't already feeling a little queasy, it certainly is now.

Tuesday, Cascade Investments, an investment vehicle for Bill Gates that owns a 12% stake in the theme park operator, disclosed its displeasure with how Six Flags is being run and vowed to play a more active role in the management. A day earlier, Washington Redskins owner Dan Snyder said he bought nearly 9% of Six Flags and vowed to fix the company by restructuring or merging it with another company.

"The pressure has to be unbearable," says Dennis Speigel, president of International Theme Park Services, which advises amusement parks. "The only way this company will survive is the purging of senior management to regain credibility in the financial community." Six Flags had no comment.

The criticism from Gates and Snyder is the latest twist for a company that stumbled badly after a push to build an empire by buying smaller parks. Rather than becoming a giant in the maturing, slow-growth industry, though, Six Flags ended up with so much debt that it hasn't turned an annual profit since 1998.

Gates has been a Six Flags investor for five years. In that time, the stock has fallen roughly 80%, which explains why he wants the company fixed. Snyder's motive isn't as clear, though he might simply see a bargain. The stock is nearly 90% below its all-time high, and, at $5.57, it's almost as cheap as a ride on Coney Island's aging Cyclone roller coaster.

Taking on tough challenges with seemingly undermanaged properties is something Snyder appears to relish. He defied critics when he bought the Redskins for $750 million in 1999. While the team's performance on the field and win-loss record have been a disaster, behind the scenes, Snyder has made the Redskins the NFL's most valuable team.

Challenges facing Six Flags include its:

•Mature industry. Unlike technology and even football, the amusement park business is growing slowly. Last year, overall park attendance fell 2 million to 322 million people.

• Track record. Six Flags' performance has been so sour that some portfolio managers have written it off. Derek Rollingson, of the Icon Leisure and Consumer Staples fund, in 2002 removed it from a list of stock he'd even consider buying.

•Crushing debt. The company ended the second quarter with nearly $2.2 billion in debt, roughly twice the equity invested in the business. The debt has put Six Flags in a straitjacket, preventing it from adding rides that get visitors' blood boiling, says James Zoltak, editor of Amusement Business magazine.

It's exactly those odds Snyder relishes, and the industry needs his entrepreneurial attitude, Speigel says. "(Snyder is) an out-of-the-box thinker," he says, adding that Six Flags' current "management has gotten away with this too long."

Thoughts?

[plazul]

I wouldn't touch Six Flags with a ten foot pole (bad pun). Too cyclical and lots of maintenance and labor problems.

I'm surprised Gates would go for it.