Did SeaWorld and Blackstone Bail Out Because They Watched Blackfish?
A securities fraud class action was filed recently against SeaWorld with a lead plaintiff deadline of November 10, 2014. While it encompasses a class period of 04/15/13 - 08/13/14, our analysis indicates that those who purchased in the April 2013 IPO through July 17, 2013 probably have the best case. Any amended lawsuit would want to also name the underwriters and Blackstone which owned SeaWorld as a private company before the offering.
What we find especially egregious about the facts is that Blackstone and SeaWorld undeniably knew about adverse facts which were going to get great public attention and rushed to the market with the IPO ahead of those facts. Blackstone and the insiders reaped billions.
In brief, SeaWorld’s stock has largely tanked, since the IPO, as a result of the Blackfish documentary film—Blackfish focuses on Tilikum, an orca held by SeaWorld, and the controversy over captive killer whales. Tilikum was involved in the deaths of three people during his time in captivity: a trainer at the now-defunct Sealand of the Pacific in British Columbia, a trainer at Orlando's SeaWorld, and a man trespassing on SeaWorld Orlando's property.
Blackfish was released to the broad public approximately 3 months after the IPO.
But, our investigation reveals that SeaWorld knew about the filming of the documentary of Blackfish and turned down interviews for it before the IPO. The film was previewed at Sundance on January 19th, before the IPO, but with little publicity. (119 films shown)
While SeaWorld certainly knew about Blackfish prior to the IPO, its Registration statements and Prospectus’s only warned of a theoretical possibility of documentaries in the “Risks” section:
An accident or an injury at any of our theme parks or at theme parks operated by competitors, particularly an accident or an injury involving the safety of guests and employees, that receives media attention, is the topic of a book, film, documentary or is otherwise the subject of public discussions, may harm our brands or reputation, cause a loss of consumer confidence in the Company, reduce attendance at our theme parks and negatively impact our results of operations. Such incidents have occurred in the past and may occur in the future.
The IPO and two follow-ups—that took SeaWorld from being a private company 70% owned by Blackstone—allowed the company and insiders to dump over $3 billion in shares and allowed r Blackstone to divest to only about 20% ownership, before the impact of the Blackfish documentary was admitted by SeaWorld.
On August 13, 2014, SeaWorld acknowledged for the first time that pressure from animal-rights groups is reducing attendance. SeaWorld stock dropped to a record low after reporting earnings that missed analysts’ estimates and saying controversy over the treatment of captive whales in its theme-park shows hurt attendance. The shares tumbled 33 percent to $18.90 at the close in New York, the lowest since they started trading in April 2013. Before August 13th , SeaWorld had retreated 23 percent in a year following the release of “Blackfish,” a critical documentary about its performing killer whales.
The biggest hurdle in the case would be an argument that for drops after August of 2013 there was sufficient information out in the market about the film so that the risk was absorbed into the market price. There will also be argument over how much was known about the film in the marketplace pre-IPO. But we have seen little to date and both defenses require further analysis of what the company was saying (nothing so far has been found in any of the securities filings or press releases.)
Also, the Section 11 claims, which do not require proof of scienter, limit damages to the difference between the offering price (not price paid) and the price at the end of the class period.
