In the fall of 2009, Cedar Fair’s executives were weighed down by the company’s mountain of debt and saw no easy solution.
An attempt that began about three years ago to sell three amusement parks to raise cash failed when no one made any serious offers.
It didn’t help when the credit markets began to decline in mid-2007. A plan to sell more equity units also fell through. Officials slashed cash distributions to unitholders nearly in half in early 2009, but that still didn’t ease the company’s financial woes. It needed a lifeline to stay afloat.
New details of the company’s efforts to manage about $1.6 billion in debt, and the ups and downs of its talks with Apollo Global Management, emerged late Friday afternoon when Cedar Fair filed a document with the Securities and Exchange Commission.
See the preliminary proxy statement here.
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The document, called a “preliminary proxy statement,” spells out why Cedar Fair wants unitholders to approve Apollo’s proposed acquisition of Cedar Fair, which would make Cedar Fair private. The deal must gain support from the owners of at least two-thirds of Cedar Fair units, which number about 55 million.
Unitholders are being offered $11.50 per unit. Cedar Fair’s unit price closed Friday at $11.85.
Once the SEC approves the proxy statement, a final version will be mailed out to unitholders. They’ll vote on the sale, which is to be carried out near the end of March.
If the deal falls through, Cedar Fair will have to pay Apollo a “breakup fee” of about $19.5 million. The size of that fee falls to $11.4 million if the agreement falls apart during the go-shop period through Jan. 25, when Cedar Fair can consider other offers.
Apollo is paying about $2.4 billion for Cedar Fair. That figure includes assuming the $1.6 billion in debt, much of it piled on the company’s back in 2006 when it bought the Paramount amusement parks.
Cedar Fair CEO Dick Kinzel has said the transaction allows Cedar Fair to refinance its debt, and Apollo promised Kinzel and other Cedar Fair executives will stay on board.
The explanation makes sense because Apollo has a reputation for handling restructuring of debt, said Steven Kaplan, an expert on private equity who teaches at the University of Chicago. If that plays out, there wouldn’t be dramatic changes in how things are run at Cedar Point and other Cedar Fair parks, he said Wednesday.
“So business would go on, and what Apollo would be doing would be financially engineering the capital structure so that the company has more room to operate, and wait for the economy to pick up,” Kaplan said. ”In that case, you would not see a whole lot change in the immediate short run, other than they would figure out a way to restructure the debt.”
The proxy statement’s history of the sale reveals it wasn’t a sudden decision, said Stacy Frole, director of investor relations for Cedar Fair. It’s a culmination of years of efforts to figure out a way to cope with Cedar Fair’s debt load, which became heavier when the economy went south.
In late September 2009, an executive of Apollo Global Management, a giant private equity company based in New York, contacted Kinzel about the company’s interest.
It was a name Kinzel recognized. In 2007, Kinzel later reminded his board, Apollo carried out substantial research on Cedar Fair as it considered investing in the company. In 2008, Apollo expressed interest in buying Cedar Fair or investing in it. Kinzel had not heard from his corporate suitor for about a year, however, before Apollo came calling again in late September.
Then on Oct. 6, Apollo met Kinzel with a proposal. It wanted to buy Cedar Fair.
The document gives considerable detail about the negotiations between the two parties. The $11.50 figure, for example, was a compromise. Apollo offered $11 at one point, while the board of directors had $12 to $12.50 in mind.
Cedar Fair’s board also held out for the go-shop period, allowing it to consider offers by other investors for 40 days after the merger agreement was publicly announced. Cedar Fair has not commented on whether it has been contacted by other suitors.
The proxy statement explains that Kinzel will receive a new three-year contract as Cedar Fair’s top executive when Apollo takes over. That extends his current contract, which expires in January 2012.
The new agreement also will replace earlier agreements on what Kinzel and other top executives would be paid if Kinzel lost his job as a result of a company takeover or for another reason.
A 2009 proxy statement says that if Kinzel left because of a takeover, he’d get a golden parachute of about $20 million.
The new proxy statement doesn’t spell out how much Kinzel would be paid if he became unemployed after a loss of control of the company. The information to tabulate the numbers wasn’t available by Friday, Frole said, when the proxy statement was due.
The new golden parachute numbers will be spelled out in about 30 days, when the final version of the proxy statement is mailed out to unitholders.
The final proxy also will give the date for the planned special meeting on the merger, which will take place after the votes on the merger have been tabulated.