“Affiliates of Blackstone control us and their interests may conflict with ours or yours in the future” ~ Risk Section, SeaWorld Entertainment Stock Prospectus
By Catherine Austin Fitts
The Blackstone Group is the largest private equity investment firm in the world. One of its many investments is a 22.5% ownership position in SeaWorld Entertainment held by the firm and its co-investors, including affiliates of Goldman Sachs. (See SeaWorld Entertainment 2014 Proxy)
Blackstone purchased SeaWorld as part of its acquisition of the Bush Entertainment Corporation in 2009. The firm’s efforts to reduce its ownership began with SeaWorld’s filing of an S-1 Registration statement in December 2012.
SeaWorld proceeded with the offering in April 2013 and a subsequent offering in April 2014 as well as repurchases of shares into treasury stock, which brought Blackstone’s holdings down to the much lower level of 22.5%, albeit still in the lead investor position. Blackstone has a strong position on the SeaWorld board, with three senior Blackstone executives serving as members of the board of directors.
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Goldman Sachs and JP Morgan served as senior managing underwriters on SeaWorld’s stock offerings to the public. Law firms listed on the registration offerings include Latham & Watkins and Simpson Thatcher. Presumably, they would have opined on the adequacy of the disclosure for the company and/or the underwriters. Blackstone Capital Markets also served as a co-managing underwriter. Consequently, Blackstone and Goldman and their affiliates were both investors and underwriters marketing their investment positions to the public.
I have never been to SeaWorld or followed the company. But this last week when SeaWorld’s stock took a swan dive from $28 to $21 on Wednesday, August 13th and then dropped to $18.66 at Friday’s close, I got curious. For a stock to drop 33% when the prices for the S&P 500 and the stock of largest investor Blackstone (BX) are holding steady, well that is a very big drop.
The decline was in response to SeaWorld’s report that attendance and profitability were hurt by concern regarding their treatment of Orcas, killer whales, and SeaWorld’s safety record (specifically, the death of two SeaWorld trainers and a trespasser killed by an Orca named Tilikum) and the possibility of legislation in California outlawing keeping the whales in captivity. SeaWorld reported that they expected revenues for the year to be down by 6-7%.
This weekend I watched Blackfish, the documentary credited with bringing increased attention to the deaths at SeaWorld.
Because animal rights and other environmental issues are sometimes used as a stalking horse in a deeper game of economic warfare, I was curious to see who and what was involved. I also find the balancing of short-term profits with safety standards to be an important governance and leadership challenge – getting this right is a sign of excellence in leadership. Indeed, one of my favorite corporate stories is how Paul O’Neill transformed Alcoa by creating the highest possible safety standards. (See the chapter on Alcoa in The Power of Habit: Why We Do What We Do in Life and Business)
Blackfish was created and directed by Gabriela Cowperthwaite who began the project after hearing of the death of Tilikum’s trainer Dawn Brancheau in 2010. The documentary is very powerfully done. I leave it to you to watch it and draw your own conclusions.
As I watched the documentary, I started to notice the timing of sales of Blackstone’s holdings in SeaWorld and the increased press and attention resulting from Blackfish.
Blackfish premiered at the 2013 Sundance Film Festival on January 19, 2013. Blackstone and SeaWorld had to know it was coming. SeaWorld management would have been managing the inquiries and feedback that comes when a documentary maker is in the process of trying to interview your former and existing employees and researching related litigation, not to mention increased federal and state government attention related to the trainer deaths.
SeaWorld filed their S-1 Registration with the SEC on December 27, 2012 to facilitate sales of Blackstone and their investors holdings in SeaWorld.
It’s premiere a success, CNN Films and Magnolia pictures picked the film up on January 22, 2013.
CNN Films is owned by CNN, which is owned by Turner Broadcasting, which is owned by Time Warner.
Magnolia is owned by Dallas Clippers owner and billionaire Mark Cuban of Shark Tank fame and his partner Todd Wagner.
Suffice it to say, Blackstone and SeaWorld surely knew they had a serious problem in 2012. Once CNN and Magnolia picked the film up after positive reviews at Sundance, they certainly knew they had a very big problem.
SeaWorld’s IPO went forward on April 2013, permitting Blackstone and its investors to reduce their holdings. A review of the risk section in the offering provided no specific warning that SeaWorld was about to be hit with a barrage of brand destroying publicity.
On July 2, David Kirby published his book, Death at SeaWorld: Shamu and the Dark Side of Killer Whales in Captivity. Then CNN ran Blackfish.
Blackfish began showing in theatres in July 2013, was released on DVD and Blu-Ray in August 2013 and aired on CNN in October 2013 and the BBC in November 2013. The documentary inspired a strong public reaction, inspiring numerous music groups to cancel performances at SeaWorld. This July, Southwest Airlines ended their partnership with SeaWorld over concerns aired by Blackfish.
Blackstone and SeaWorld then proceeded with another round of filings, culminating in a second public offering as well as company repurchases in March and April of 2014, reducing Blackstone and their investors down to 22%.
This sale came right before a court of appeals upheld OSHA fines against SeaWorld as a result of actions take after the death of Dawn Brancheau.
- Carl Hiaasen: SeaWorld’s troubles increase as public learns about plight of orcas
- U.S. Government Hits SeaWorld With Safety Violation—Again
SeaWorld’s troubles are far from over. There are a lot of class action securities litigators in the United States. My guess is a few will review the prospectus for SeaWorld over the last two years. They will notice that any disclosure on SeaWorld’s safety record and related criticisms and governmental actions was vague and obtuse at best and a failure to disclose at worst.
Too bad the SeaWorld management did not see the opportunity to use Blackfish as a way to address real safety issues and reinvent their model for a changing world and market. It appears their focus may have been instead, on at getting Blackstone out – and the investing public in – “at the top.”
I encourage you to decide for yourself. The S-1 Registration statement filings can be found at SeaWorld Entertainment’s website in the Investor Relations section under SEC filings. Pay special attention to the “Risks” section – that is where a company is required to tell you all the potential risks of an investment:
Today’s media coverage implies that SeaWorld may look to move their whales to countries with less regulation.
Maya Angelou once said, “History, despite its wrenching pain, cannot be unlived, but if faced with courage, need not be lived again.” Whatever has happened, SeaWorld and their investors have not yet faced their history with courage.
There is a deeper story here. Let’s say a prayer for the whales and the people entangled in this mess and see what emerges.
In the meantime, if a private equity firm is selling, you should think twice about buying: SeaWorld, other private-equity backed stocks lag IPO market
