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Cedar Fair purchase is hardly a done deal

Tom Jackson • Mar 8, 2010 at 8:09 AM


The old adage “it ain’t over ’til the fat lady sings” might apply to the proposed deal to sell Cedar Point’s parent company, Cedar Fair.

Apollo Global Management’s $2.4 billion purchase of Cedar Fair requires approval from the owners of at least two-thirds of Cedar Fair’s outstanding units. The people who own the units must be persuaded that the $11.50 per unit offer is a good deal.

But Cedar Fair executives and Apollo managers have not persuaded analyst Jeffrey Thomison of Hilliard Lyons, a financial consulting firm in Louisville, Ky. He’s not convinced they can reach the two-thirds threshold to make the deal go through.

Thomison wrote a report saying the deal price “seems a bit low” given the company’s earnings history and its “bright” long-term outlook. He predicted if Cedar Fair remained an independent company, rising cash flows and declining debt would lead to a unit price in the upper teens in 2011.

There is a “slight chance of a higher offer surfacing in the next month or so,” Thomison wrote, so it should not be “a foregone conclusion, in our view,” that there will be enough support from the unitholders.

The agreement with Apollo allows Cedar Fair to listen to other offers for 40 days.

Randy Hunt, branch manager and senior vice president with Stifel Nicolaus & Co. in Sandusky, said Dec. 18 he’s gotten an earful from many unitholders and the reaction has been largely negative. He said he’s heard from dozens of people, and “most are unhappy.”

“I would say it’s a solid majority,” he said. “I’ve got a stack of messages on my desk already this morning to call people back.”

“They feel it’s a very low price. I believe most of them will vote against it,” Hunt said.

Cedar Fair’s board voted unanimously to approve the merger, and CEO Dick Kinzel and his executive team strongly back the deal.

The $11.50 price is a 28 percent premium over the closing price on Tuesday, the company noted in its Dec. 16 news release announcing the deal, and a 43 percent premium over the weighted average closing price during the past 30 days.

“We have concluded that the transaction with Apollo is in the best interest of our unitholders,” Kinzel said.

He said unitholders will receive documents in the mail explaining why Cedar Fair believes it struck a good deal with Apollo.

The executives recommending the deal, however, don’t hold enough units to guarantee a positive outcome on the vote. As of Jan. 31, 2009, the board of directors and the 15 executive officers held about 4.4 percent of the outstanding units.

“That percentage typically is not going to fluctuate very much,” said Stacy Frole, director of investor relations for Cedar Fair.

Sandusky resident Susanne Scheid owns many units of Cedar Fair. She said she plans to vote against the deal.

“I don’t think they should give up now because the economy’s bad,” Scheid said. “I think they shouldn’t sell to Apollo ... We don’t need some outsider telling us what to do.”

Levi & Konsinsky, a New York City law firm specializing in securities litigation, said on its Web site it is investigating possible litigation on behalf of unitholders.

“The investigation concerns whether the Cedar Fair board of directors breached their fiduciary duties to Cedar Fair shareholders given that the Company’s shares traded at $12 per share as recently as Aug. 3, 2009, and at least one analyst set a price target for Cedar Fair stock at $15 per share,” the firm said in a statement.

Dennis Speigel, president of International Theme Park Services of Cincinnati, a theme park consulting company, said it appears Apollo got an excellent price for Cedar Fair. He said he expects Cedar Fair to continue to do well.

“Our industry during 2008 and 2009 has shown as a business, and as an industry, it’s very resilient,” Speigel said. “It’s not recession proof, but it’s recession resilient.”

Here's what commenters had to say: 

Quicksand wrote on Dec 21, 2009 5:26 PM:

" To Browndog271: are you saying Kinzel sold some of his stock or borrowed against it? If he borrowed against it, then wouldn't that make his vote on those shares void? I sold all of mine 2 summers ago so I can't vote, but I would vote no. Not that I am against developement in Sandusky, but it would be nice to keep CP a local amusement park instead of a Casino--especially if they decide to break away from the city, which I think is possible and a likely probability if they do put in a Casino. I know the casinos were not approved for our city, but how long do you think it would be before it is? 2-3 years max? They could build a large condo/hotel building now and in 2-3 years it would be already be ready for the gambling. I've heard for years that Sortinos and CP is already wired and waiting! Don't know if it's true, but I'm sure you've all heard that rumor. The only real beef I've ever had with CP being in my backyard is the price gouging in the summer (and at holidays, like now!) and the traffic. They should give residents a 25% discount everywhere and a special lane to drive in (like the carpool lanes in CA.) And special seating in restarants and our own checkouts lanes! I don't think that's asking for too much! I get sick of hearing what all CP has done for this city and this area and for us! I do not see anything they have done for ME! Unless you own a business on 250 or a hotel, how have you benefited personally? If this city had not catered to them like they did for 35 years, it would be in a lot better shape. They thought they had the goose that laid the golden egg! Well, the goose is dying now, so now what? Better get them tollgates up quick! "

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whocares wrote on Dec 21, 2009 1:49 PM:

" Kinzel can't retire! Where will his kids work? "

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Joker wrote on Dec 21, 2009 1:41 PM:

" Where were all of you Adam Smiths three years ago? Probably buying 52" flat screen TVs on credit that you're still paying off. "

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Browndog271 wrote on Dec 21, 2009 11:04 AM:

" here is an add on, Kinzel had to sell shares to cover a margin call, ie borrowed $ against his stock at a brokerage firm. If he cannot manage his own finances, how can he managed FUN, it is obvious "

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Browndog271 wrote on Dec 21, 2009 10:49 AM:

" The deal is way to low, my guess is that the fat cats are getting a great payout to sell off the park, unit holders get the short end of the stick, kinzel porked up the board with hs friends and that is why they rolled over to do the deal and of course keeps him on even though there was a mandatory retirement age, they waived it for him, then he made the horrid decision to over pay for paramount parks, just like Nero, watched Rome burn. Bring back Don Miears or Gaspar Lococo, they knew how to run parks "

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factitious wrote on Dec 21, 2009 10:11 AM:

" Any way you look at it, 5 years, 1 year, 6 months, FUN has seriously underperformed the Dow -- until mid November. What made it look so good then? The news of a probably dividend cut? Or was this just recovery from the 2-1/2 point drop after the recent quarterly report? "

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vector wrote on Dec 21, 2009 10:06 AM:

" same debt (plus transaction fees)

new equity (Apollo) "

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Here in Ohio wrote on Dec 21, 2009 8:43 AM:

" bankruptcy = 00.00 bucks, dont let the GREED bug get the better of you all,you just may end up with NOTHING,vote YES take the money and run !! "

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vector wrote on Dec 21, 2009 8:11 AM:

" 1.historic regional depression

2.paralyzed banking environment

3.very competent OPERATING management

4.underlying value untapped

5.time to sell....I think not

apollo----shrewd "

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6079 Smith W wrote on Dec 21, 2009 7:59 AM:

" I own shares of (FUN) indirectly through mutual funds and therefore have a say in the matter.

IMO, the fact that the div'd was suspended earlier this yr. should have been 'handwriting on the wall' for only but the clueless.

Wasn't it 2006 when Cedar Fair purchased the other parks and took on the debt? Remember 2006? Credit was flowing, lending was loose and interest rates were low. Anyone familiar with the term – ‘The Great Moderation'?

Many business decisions are made in the midst of a credit bubble that in hindsight are later found to be imprudent. Monday morning quarterbacking is for those who never take the field.

Now commercial credit is tight to nonexistent. Cedar Fair is a capital intensive business and needs a line of credit in order to survive as a viable business – without it, it dies.

If you know how to read financials, (I’m not an expert, but I know enough) look at Cedar Fair’s annual report – they’re in trouble!

They need a capital infusion and Apollo is their lifeline.

For the love of Mike, Six Flags declared bankruptcy earlier this yr. and have yet to emerge.

Equity holders are at the bottom of the food chain in a bankruptcy and tend to end up with zero.

With a shareholder lawsuit, technically you’re only suing yourself and the only ones who actually make any money are the lawyers.

If I owned shares directly, I would take the money and run. "

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middleclass wrote on Dec 21, 2009 7:29 AM:

" I am at the bottom of the barrel as far as holders of FUN shares go but I will be voting no. "

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William Jefferson Clinton wrote on Dec 21, 2009 7:08 AM:

" Litigation over Breach of Fiduciary Duty will most likely not be successful as the board has simply been foolish, not negligent to this point. The Paramount deal tought a lesson that second rate amusement parks will lose. We already know locally how second rate water parks fair as well.

Apollo understands this and is best suited to lead to the devlopment of a first rate Casino incorporated with a first rate amusement park. It is simply a good business decision and wil increase profit and provide a steady stream of off-season income that far, far excedes any water park.

Part of the determining factor of what price to sell needs to look at the potential value to other investors and what the end result could be. This is a low ball deal, and unit holders should hold off until we're in the $18 range. "

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Grayghost wrote on Dec 21, 2009 6:16 AM:

" It appears something is not quite right. How can Cedar Point get themselves into so much debt and not understand how much debt they were acquiring by buying up every park around. It doesn't sound smart or make any sense. Does anyone know what the stock topped off when it was doing great? I think the SEC should be looking into why they took on so much debt and then turned around and dumped their stockholders at a loss to a company that has a casino background. "

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Joker wrote on Dec 21, 2009 3:30 AM:

" In this economy, people are going to cash the (expletive) out. Lots of the unit holders bought shares when they were $10 a pop. They got paid fat dividends for 20 years and the stock split, so $11.50 is a great deal. I guarantee D!ck Kinzel and his hundreds of thousands of shares are going to vote yes. Also consider how many people will simply allow their votes to go to a proxy bidder who will more than likely vote 'yes.' "

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