Banks vie for £2bn float by owner of Madame Tussauds

Mark Leftly
Sunday 06 September 2009 00:00 BST

Madame Tussauds owner Merlin Entertainments Group is in final preparations for a £2bn London Stock Exchange listing in early 2009 that could propel it into the Ftse-100.

Goldman Sachs, JP Morgan Cazenove, Citi, Merrill Lynch, Deutsche and BNP Paribas have all pitched over the summer to be one of two bookrunners for the listing.

Although a formal beauty parade for advisers has not been held, all the banks have presented their cases for the mandates over the past two months. They are awaiting a decision by Merlin and its owner, private equity giant Blackstone.

Citi and Goldman were identified by one market source as the favourites, as they could provide the necessary financial muscle to refinance Merlin's debt burden, a necessity ahead of a listing. Although the debt is believed to be more than £1bn, this is not a heavy burden on a company the size of Merlin.

A listing has long been the ambition of Blackstone and Merlin's management. In a newspaper interview in July, Merlin's chief executive, Nick Varney, said: "If a flotation is going to happen then the markets have to be open – and at the moment they're not." He added: "Merlin would be a very strong and popular listing but I can't say at the moment if we're going to float."

It was believed that the chance of a listing had been delayed until the second half of next year, but it seems that the recent stock market rally has made Merlin and Blackstone reconsider.

Merlin, based in Poole, Dorset, has been the poster child of the private equity industry, regularly cited as one of its greatest successes. The group was originally known as Vardon Attractions, which owned the Sea Life Centres, and has grown into the world's second biggest entertainment group after Disney.

Under a "buy-and-build" strategy, in which private equity owners purchase complementary business to create a powerful empire, Warwick Castle, Legoland and the London Eye are among the many attractions to have become part of Merlin.

A leading leisure sector banker said: "They [management and Blackstone] are trying to do this as soon as possible – quarter one 2010 or even quarter four this year."

A second source said that Merlin is "playing its cards close to its chest" over the appointments, but confirmed that two advisers would be necessary due to the size of the flotation. It is understood that banks have told Merlin that a listing could be worth from £1.75bn to more than £2bn.

There are suggestions that Blackstone could include Center Parcs, the resorts group the private equity giant bought in 2006, in the listing, which should ensure that the deal was of enough scale to put Merlin in the Ftse-100.

In 2008, Merlin's revenue was £662m, which was bolstered by the previous year's purchase of the Tussauds Group, which owned Alton Towers as well as the international waxwork exhibitor, for £1bn.

Blackstone is also examining options for the Hilton hotel group, another company in its portfolio, which it brought for $26bn (£16bn) at the height of the market in 2007. The choices include debt-for-equity swaps for parts of the business and public listings along geographic lines. Hilton, like most hotels, has struggled during the recession. It is thought that Blackstone wrote down the value of its investment by 50 per cent last year. The group is heavily indebted – $21bn was originally borrowed to complete the purchase.

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