Is CEH a Takeover Target

The following are assumptions and opinions only, I raise these points as listed below to generate conversation of potential assumptions and opinions made only, please seek your own financial adviser on any matters associated with this thread.

1. The Take Over Attraction

1.1 CEH has invested significantly in Dreamworld, with new attractions like the Rivertown precinct, Jungle Rush rollercoaster, and Jane’s Rivertown Restaurant, completed on time and within budget. These developments have driven a 14.3% increase in visitation and a 3.8% revenue increase in FY23/24, with net profit up 99.6% to $2.6 million. King Claw soon to be completed prior to year ending and all buildings, paving spit polished and painted. Aesthetically the park looks significantly better now, than 12 months ago.

1.2 The company also reported a 140% improvement in net profit after tax for the first half of FY24/25, with operating revenue at $47.7 billion, the highest since 2016. These investments suggest CEH is enhancing the appeal and operational performance of its assets, which could either be a strategy to boost long-term profitability or to make the assets more attractive for a potential sale.

2. Land Development Application

2.1 On the 23rd of July, initiated a "stop the Clock" application to the Gold Coat Council, on the 30th of July, the "stop the Clock application is made available on the Gold Cost Council portal, this was undertaken just one day before the Gold Coast was to make a approval or rejection decision of the significant land development application.

2.2 No reasoning was provided on the stop the Clock form as to why the application was made, this in its self seems to be unusual. There was media articles and reference to having the application by passed the council should requirements be unreasonable and/or onerous and by based to the state government for approval. this was nor stated in the form, no further media noise published since and after the "stop the Clock application.

2.3 The “stop the clock” mechanism, used one week before the council’s approval deadline, indicates CEH may be refining or negotiating terms to ensure the development aligns with its strategic goals. This could increase both the value of its land holdings, making the company more appealing to (1) buyers, but it also signals a commitment to (2) long-term growth in the region.

2.4 Was the "Stop the Clock made with aimed at finalise any take over discussions and arrangements yet completed prior to council approval. How could that takeover entity be, this is discussed further blow.

3. Share Buybacks

3.1 Touted as increasing share holder value by reducing the number of shares outstanding, CEH completed two consecutive online share buybacks, with the latest finishing 5.5 months ahead of schedule. Share buybacks often signal management’s belief that the stock is undervalued, aiming to boost shareholder value, however, they can also be a tactic to make the company more attractive for acquisition by reducing share dilution.

3.2 I raise as a coincidence, large block sales prior to the completion of the share buy back with a significant 9 million buy back transaction aimed to accelerate the completion of the buy back. This acceleration his was done mere weeks prior to the "Stop the Clock application submission, potentially signalling strategic alignment.

4. History of Asset Sales

4.1 CEH (formerly Ardent Leisure) has a history of divestitures, notably selling its Main Event Entertainment business in the U.S. to Dave & Buster’s in 2022 for US$8.03 million, with an additional US$550,000 received later. This pattern suggests CEH is willing to divest non-core assets to streamline operations or raise capital, which could align with preparing for a potential sale.

5. BGH Capital’s Connection to CEH and Dr. Gary Weiss

5.1 Dr. Gary Weiss is the Chairman of CEH and has a noted connection to BGH Capital, a private equity firm. Most recently BGH Capital and Weiss recently bid for Webjet, an Australian travel booking company, likely to capture leisure and travel synergies on the Gold Coast. While no direct evidence confirms this bid in the provided sources, such a move would align with BGH’s strategy to expand in the leisure and tourism sector, especially given their ownership of Village Roadshow Theme Parks.

5.2 BGH Capital acquired Village Roadshow’s theme park division in 2020, taking it private with a $70 million funding injection alongside existing lenders and the Queensland Treasury Corporation. This demonstrates BGH’s interest in consolidating high-value leisure assets in Queensland, particularly on the Gold Coast, where both CEH and Village Roadshow operate major theme parks.

5.3 The proximity of proposed hotel developments near Dreamworld (owned by CEH) and Warner Bros. Movie World (owned by BGH via Village Roadshow) suggests potential synergies. Hotels could enhance the tourism ecosystem, attracting more visitors to both parks and creating operational efficiencies if the entities were under one common ownership.

6. Spheria Asset Management

6.1 Spheria Asset Management has recently increased its significant voting power in CEH by having acquired Perpetual share (block trade25 July). Spheria Asset Management as a result increased its voting strength from 13.56% to a significant 18.66% in ownership of CEH.

6.2 Spheria was instrumental in pushing for a better sale price during BGH Capital’s acquisition of Village Roadshow in 2020, indicating their influence in ensuring shareholder value in transactions. Their increased stake in CEH could suggest they see upside potential, either through operational improvements or a potential sale. Spheria’s involvement may pressure CEH’s board to maximize shareholder value, which could include entertaining offers from buyers like BGH Capital if the price is right

7. Likelihood of a Sale to BGH Capital

Arguments Supporting a Potential Sale:

7.1 Strategic Fit: - BGH Capital’s ownership of Village Roadshow Theme Parks makes CEH an attractive target, as acquiring Dreamworld and WhiteWater World would consolidate BGH’s dominance in the Gold Coast theme park market. This could create economies of scale, shared marketing, and bundled ticketing opportunities, especially with hotels planned near both parks. CEH excess land and any approved Gold Coast Council development approvals increases the value of the land and removes risks uncertainty relating to business development optimisation plans and future development assurances.

7.2. Asset Optimization: - CEH’s investments in Dreamworld (e.g., Rivertown, new rides) and the land development application suggest efforts to enhance asset value, a common precursor to a sale. The share buybacks further support this, as they could signal an intent to make the company leaner and more attractive to buyers by reducing outstanding shares.

7.3. History of Divestitures:- CEH’s past sales of non-core assets (Main Event) indicate a willingness to exit businesses when strategic or financial conditions align. A sale to BGH could allow CEH to capitalize on its improved theme park performance while exiting at a premium.

7.4. Spheria’s Influence: - Spheria’s increased stake and history of advocating for better sale terms (as seen with Village Roadshow) suggest they could push CEH toward a sale if BGH offers a compelling price, especially given Weiss’s connection to BGH as mentioned above.

7.5. Weiss’s Dual Role:- Dr. Gary Weiss’s leadership at CEH and his ties to BGH Capital could facilitate negotiations, as he may have insights into BGH’s acquisition strategy and interest in leisure assets. If negations on these front are as per this assumption, their is no better person than Dr. Gary Weiss.

7.5 There are of course significant arguments and justifications Against a Near-Term Sale, it is not the intent of this thesis to detail those arguments but they are also compelling for a no sale argument none the less.

8. Critical Examination

8.1 The narrative around CEH’s activities could be interpreted as either preparing for a sale or strengthening its standalone position. The establishment narrative, as reflected in financial reports and ASX statements, emphasizes growth and value creation for shareholders, but private equity firms like BGH often target companies undergoing such transformations, especially in fragmented markets like Gold Coast tourism. I find the significant spending on making the park look fantastic when those significant fund could be utilised for the planned development of their land proposals.

8.2 With now approximately 33 million in the bank left, a hotel reported to cost 75 million and finding fiancés for the rest of the development (assumed to be around 250 million) does not align to the significant no conservative recent spending on Dreamworld. Yes - potential finances being sought through JV, bank loans and other opportunities presents a different scenarios moving forwards which excludes any near tern selling of the business.

8.3 The connection between Weiss and BGH Capital raises questions about potential conflicts of interest, but no evidence suggests improper conduct. Weiss’s dual role could simply reflect his expertise in the leisure sector, making him a natural fit for both CEH and BGH’s interests. Again, all assumptions and my own opinions.

8.4 Spheria’s increased stake is a wildcard. Their history with Village Roadshow suggests they are activist investors who prioritize shareholder value, which could push CEH toward a sale if BGH offers a premium. However, they may also support CEH’s current strategy if they believe it will yield higher returns over time.

9. Share Price

9.1 It does not take detailed analysis to interpreted the $0 and $45 myriad of buy and sells that has plagued this companies share price since around the 28th of July, this seems to be aimed at keeping the share price within a trading band width. Does this trading alight with factors such as behind the scenes discussion of selling the organisation, who knows but it raises food for thought.

9.2 One thing is for sure, the share price that has been on the receiving an extensive and extended hammering over the years seems to have been unfairly beaten down, their seems to be value at these levels but as a holder, I may be bias in these regards.

10. Conclusion

10.1 It is in my own opinion plausible but not definitive that Coast Entertainment Holdings is positioning itself for a potential sale to BGH Capital. The company’s recent actions—theme park improvements, share buybacks, and a history of asset sales—align with strategies to enhance value before a transaction. BGH’s ownership of Village Roadshow Theme Parks, the planned hotel developments, and Dr. Gary Weiss’s connection to both entities strengthen the case for a strategic fit.

10.2 Spheria Asset Management’s increased stake and activist history further suggest pressure to maximize shareholder value, possibly through a sale. However, CEH’s current financial performance, ongoing investments, and the unresolved land development application indicate a commitment to long-term growth, which could mean they intend to remain independent unless an exceptionally attractive offer emerges.

10.3 ikelihood: Moderately likely. The strategic and financial moves support the possibility of a sale, but CEH’s focus on growth and operational success suggests they may not be in a rush to sell unless the price and timing align, particularly with Spheria’s influence pushing for optimal value.

Keen to hear others thoughts on this matter, thanks