Right price for US assets but it won’t quell Ardent cash burn: Citi

Citi says money from Ardent’s sale of US assets cant be brought back to Australia to ease Dreamworld’s cashflow problems. Picture: Adam Head

Ardent Leisure has achieved a strong price for its US entertainment business Main Event, especially given the current COVID-19 environment, say Citi analysts.

But they add that the proceeds cannot be repatriated to Australia, leaving Dreamworld burning cash with limited liquidity and having no clear pathway to reopening.

Ardent Leisure announced on Monday that it had sold a 24 per cent stake in Main Event to RedBird Capital Partners for $US80m.

The sale by Ardent Leisure of Main Event comes after DataRoom foreshadowed sale plans on September 3 and first reported in January that Goldman Sachs was working on a potential selldown.

RedBird Capital was founded and run by former Goldman Sachs banker Gerry Cardinale, who has made previous investments with high profile sports teams such as the New York Yankees and the Dallas Cowboys. The plan is for the firm to help Ardent Leisure expand Main Event.

“We consider Ardent’s sale of a 24 per cent stake in Main Event to RedBird as positive given the $US424 million enterprise value for Main Event implied by the deal.”

Citi says the implied enterprise value is higher than what the analysts previously valued Main Event and indicated that RedBird was paying $US10.6m for each non-impaired centre, which is 25 per cent higher than the initial build cost of $US8.5m.

Citi says that RedBird can support Main Event’s growth, given its prior experience with entertainment and leisure companies such as On Location Experiences, its strong relationship with NFL, through its portfolio company OneTeam that could be leveraged by Main Event for promotions and the potential to contribute further equity to Main Event.

However, Citi said that Dreamworld’s liquidity concerns remained, given proceeds had to be used exclusively to support Main Event.

“The longer Dreamworld remains closed, pressure on its liquidity is likely to increase as Main Event’s debt is ring-fenced in the US and there is no Australian debt facility due to serviceability issues at loss-making theme parks,” Citi said.

The analysts suggest that Ardent could repair its balance sheet by a sale and lease back of its 57ha of Gold Coast land, raising equity or securing Queensland government funding.

It is understood that company is in talks regarding both Queensland state and federal government funding assistance.

The sale will see RedBird with the option of buying an additional 26.8 per cent interest in Main Event from Ardent, exercisable between July 2022 and July 2024, which if taken up would see it as a majority owner.

The Main Event bowling-anchored entertainment business in the US has about 43 centres in places including Texas, Arizona, Georgia, Illinois and Kentucky.

Shares in Ardent rose 13 per cent on Tuesday to close at 51.5c, rebounding from Monday’s sell-off, when the stock was sold off by 7.1 per cent following the announcement of the deal.

Ardent announced the news a day before its Australian theme park rival Village Roadshow told the market on Tuesday that it had extended the exclusivity period for its $400m-plus takeover discussion with private equity group BGH by two weeks.