Since becoming a publicly-listed company in 2013, Merlin Entertainments has intermittently faced questions over how it is set up.
The company operates under three divisions – Resort Theme Parks, Legoland Parks and the smaller, generally city-based Midway Attractions.
The questions of spinning – or selling – off one or more of those divisions often come when one of them is seen to be weakly performing.
This has commonly been the Resort Theme Parks division, three of which attractions are in the United Kingdom.
2015’s Smiler rollercoaster crash, which seriously injured five people, badly affected visitor numbers at Alton Towers and other British parks.
And terrorist attacks have damaged attendances at Merlin’s heavily London-driven Midways division.
So at the announcement of Merlin’s 2017 preliminary results last Thursday, it was revealed that the Legoland division had been largely propping up the business in terms of revenue growth.
Chief executive Nick Varney was asked a question relating to Merlin’s three-way structure, and if he thought new investors in the company may conclude that there are opportunities for offloading under-performing divisions.
“Our strategy has always been about building this diversified group with natural synergies,” he said.
“From my perspective, our drive [was always] to become a third, a third, a third – to have multiple brands hitting different demographics and different customer needs while still being fundamentally a location-based attraction company in the visitor attraction market.
“I don’t see why anybody would want to break that up, because the underlying logic is absolutely clear.
“Because we’ve built it in that way, there are some quite fundamental synergies that exist in this business that you can put a price tag on.
“For example, the contribution of group promotions with things like Kellog’s, Tesco or the Merlin Annual Pass are at a minimum worth over £100 million to this business.
“So there are natural synergies. If you suddenly said ‘let’s have three different companies instead of three operating groups’, there is £100 million that you could not easily replicate.”
Varney also highlighted that the Merlin Magic Making service provider makes a lot of new business developments possible across the company.
The problem now from his perspective is that under public ownership Varney has seen – and will continue to see – his influence gradually diminish.
Last year, stock broker Numis Securities suggested that a break up of Merlin’s three divisions could unlock value for investors.
A private Merlin shareholder told Ride Rater that the questions surrounding Merlin’s structure are expected.
“There is no real precedent for what they are doing, so when it’s going well people are fine about it – but when it stumbles people want to know if there is another way,” they said.
The increasing influence from incoming investors – and Varney’s diminishing authority – was perhaps further demonstrated last week, when American investor ValueAct took a 5.4% stake in Merlin.
The US hedge fund has a history of pushing for management changes at companies including Rolls-Royce, and has driven merger and acquisition activity at groups in Europe and the UK.
It may be merely a matter of time before Merlin’s divisions are separated, in what would ultimately be just another routine business breakup.