Six Flags Looks to Prevent a Hostile Takeover

Six Flags has enacted a "poison pill" strategy in attempt to prevent a hostile takeover of the amusement park company.

Technically called a "Stockholder Rights Plan," the strategy allows shareholders to buy more shares of the company at a discount if any one shareholder acquires more than 10 percent ownership of the company. The idea is to dilute the value of the hostile shareholder's stake in the company, making it more expensive for them to take over the company without the current board of directors' approval.

Plenty of companies have used this strategy in the past, so Six Flags is hardly unusual here. But the company's dropping stock price has made it a potential target for a hostile takeover. We wrote about theme park companies' stock prices last month, and Six Flags' position has gotten worse since then, now trading at under $12 a share as of this post.

Six Flags now has a market capitalization under $1 billion. To put that value into perspective, if you were to build 1,000 million-dollar homes on the land now occupied by Six Flags Magic Mountain, that residential development would be worth more than the entire Six Flags chain right now.

Middle-class tract homes now routinely sell for a million bucks each in the Los Angeles area, so this scenario isn't too far a stretch. It also illustrates the big problem for theme park fans should someone launch a hostile takeover of Six Flags. A new owner might not be looking to get into the theme park business. It could just target Six Flags for the real estate value of its park properties, selling off or scrapping rides as it clears the land for redevelopment.

Six Flags management doesn't want that to happen, so that's why it is using this defense strategy in an attempt to make it harder for some outside party to pick the company apart.

Both Cedar Fair and SeaWorld also have market caps lower than Six Flags at this point, so none of the top three independent theme park companies in the United States is enjoying a great financial position right now. The best thing going for these companies might be that this economic downturn is no longer limited to the travel industry, meaning that many other parties that might have had the resources to make a takeover bid have problems of their own to deal with right now.

But if anyone is going to try to take over Six Flags, the company's management has made clear that it will not go down without a fight.

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