Orwell, Florida is the site of a major theme park resort destination. Its main attractions consist of
Question:
Orwell, Florida is the site of a major theme park resort destination. Its main attractions consist of five theme parks, each of which offers daily and weekly admission tickets. The 2022 ticket revenues of the five companies that own the theme parks are as follows: Dizzy World, $50 million; University Studios, $48 million; Buzz Gardens, $24 million; Ocean World, $26 million; and Dixie Flags, $10 million.
More than 85% of visitors to Orwell Theme Park come from states outside Florida, and less than 15% are local residents. There are three other amusement parks within 50 miles of Orwell. These parks are less crowded and less expensive because they have fewer attractions and rides and are visited primarily by local residents. The parks could be expanded within a year to provide more competition for Orwell Park, with visitor numbers expected to rise by a third. More tourists are expected if a hotel is built nearby, but it will be three years before any hotel opens.
New theme parks also could be constructed in South Carolina, Georgia, and Alabama since there are attractive undeveloped parcels of land at a cost of $8-$12 million in each of those states. Site development and other constructions costs likely would amount to an additional $25 million. Given these construction and land costs, a newly constructed park would have to generate at least $15 million in annual revenues to be profitable. It would take at least three years to construct a new theme park.
SeaWorld announced its intention to acquire Dixie Flags and merge its operations. Because they occupy adjacent properties, about 60 percent of patrons have visited both parks in recent years. Therefore, in addition to the regular admission tickets, the two parks also sell combined tickets that allow visitors to enter both parks unlimited times per day. That practice stopped last year, however, when Dixie Flags terminated its contract with Ocean World and the concession operator Dixie Flags had been using and was unable to reach an agreement with Ocean World on how to split joint ticket revenue going forward.
SeaWorld expects the merger to bring several significant benefits, including new and better rides and attractions. Better use of existing facilities also means these new rides and attractions can be developed at a lower cost. Additionally, merging the two parks means patrons will be able to purchase one ticket to access all rides and attractions. SeaWorld also believes the combined company will be able to negotiate better hotel and park ticket package plans for guests.
Dixie Flags is the only theme park in Orwell that has been unprofitable in recent years. Dixie Flags is the oldest park in Orwell and has fewer rides and attractions that incorporate innovative technology. For each of the past three years, the company has operated at a small loss. This year, the company's focus on enhancing its revenues has made it reluctant to discount its admissions tickets to the same extent as its competitors.
Before it agreed to merge with Ocean World, Dixie Flags contacted several theme park operators located outside Florida to discuss a sale of the company but none of the operators showed an interest. Buzz Gardens recently offered to buy Dixie Flags, but at a price 40% below Ocean World's current offer, although still well above the liquidation value of Dixie Flag's assets.
You are an attorney in the Antitrust Division of the U.S. Department of Justice assigned to analyze and evaluate the proposed merger under the Horizontal Merger Guidelines and applicable case law. What are the best arguments in favor of challenging the proposed merger and against pursuing that case? whether you find any of the facts to be significant one way or the other and explain why. Also discuss any significant facts about the proposed merger or the industry that you do not have but would need to analysis and evaluation.
Cost Accounting A Managerial Emphasis
ISBN: 978-0133428704
15th edition
Authors: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan