Six Flags “Inherited” Problem

Six Flags (SIXF) CEO Mark Shaprio is at it again. He issued a letter to employees and in it was, for me, a startling paragraph.

The letter is below but there is one paragraph you really have to read:

Unfortunately, however, as you know, we inherited an unsustainable $2.4 billion debt load from the previous management team. To put it into context, even if you have a record year and make approximately $275 million as we did last year, when you have to pay out approximately $175 million in interest expense on your debt and $100MM in park improvements to maintain and keep up with the business, that’s a balancing act you just can’t risk year in and year out. Furthermore, we have over $400 million of debt coming due within the next 12 months that cannot be refinanced in these financial markets.

Let’s look at it. Shapiro is saying that he “inherited” the current situation (that seems to be the excuse of the moment recently?). But, he didn’t. Daniel Snyder waged a proxy contest in 2005 against the management team at Six Flags. He was successful at placing Shaprio in as the head of the company. Shapiro and his team sought out the situation they are currently in, they did not “inherit” it.

Proof?

In 2005 Snyder, when he proposed Shaprio and himself be named to the board at Six Flags said in an SEC filing:

Although we believe the entire Board should be held accountable to stockholders and removed for the Company’s underperformance, we are seeking only a non-majority position on the Board due to the approximately $2.6 billion in poison debt and preferred stock (collectively, the “poison debt”) the Company has put in place over the years. The Company’s approximately $2.6 billion in “poison debt” permits the holders of such securities to either accelerate the outstanding amounts or require the Company to offer to repurchase the securities if we (or any other party) were to obtain a majority position on the Board. For this reason, if elected, our Nominees will not be able to cause the Board to take (or not take) any specific actions, but we are confident that our Nominees will use their best efforts to influence the Board and management and bring about changes that in their judgment are in the best interests of all Six Flags’ stockholders.

We believe that with the right management team in place, Six Flags can implement measures to increase revenue and decrease expenses, eventually outperform its peers in the amusement, recreation and leisure industry and maximize stockholder value. Therefore, on or about the time we file our definitive consent solicitation statement with the SEC, we plan to commence a fully funded cash tender offer (the “Offer”) to purchase up to 34.9% of the Company’s outstanding Shares (the calculation of such percentage to include any Shares we own at the time we accept Shares for purchase pursuant to the Offer) at a price of $6.50 per share. The Offer will be on the terms and subject to the conditions to be set forth in an offer to purchase and related letter of transmittal which we plan to file with the SEC at the commencement of the Offer.

Six Flags answered Snyder by saying:

Red Zone contends that the Company’s strategies must be completely overhauled. Yet, the evidence, in our judgement, shows that our plan is working. Starting in late 2003, the Company launched a series of initiatives to improve performance, including targeted capital expenditures, improved guest services and the aggressive launch of a new advertising program. Early results of the turnaround include significant increases in attendance, per capita spending and cash flow. The Company recently reported that year-to-date revenues through August 1 of this year were 9.8% higher than in the comparable period of the prior year, on an attendance increase of 6.3%. This compares to a 1.8% decrease in revenues in the comparable 2004 period over the prior year and an attendance decrease of 4.2%.

If any of that reasoning sounds familiar, it should. It is the same lame attempt at painting a rosy picture for a money losing operation Shaprio has been using every quarter since he assumed control. Read the letter below, it is there…

Also from the “other guys playbook”. Snyder in his letters chiding previous management said they “cannot continue to blame bad weather for poor results”. Yet, in 2007, Shaprio rolled out he very same excuse.