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Letter to unitholders calls Apollo’s $11.50 per-unit offer ‘bargain basement’

Tom Jackson • Mar 7, 2010 at 8:29 PM


The Texas investor who led the effort to block Apollo Global Management’s proposed acquisition of Cedar Fair sent a letter to unitholders asking them to vote against the plan.

The $11.50 per-unit offer from Apollo is “a ‘bargain basement’ price struck during one of the worst economic climates this country has ever seen,” says the Feb. 18 letter from Q Funding III, and Q4Funding.

The two companies are controlled by Geoffrey Raynor, a Texas investment banker who has declined interviews but has spoken out through his SEC filings and press releases. Raynor controls the votes for 18 percent of Cedar Fair’s outstanding units. The sale to Apollo must be approved by two-thirds of the unitholders.

Cedar Fair’s stock closed at $11.31 Friday.

The Q Funding letter acknowledges Cedar Fair’s unit price has declined over the past year, but says Cedar Fair has had to endure both a bad economy and restrictive rules with its creditors that forced the company to end cash distributions to unitholders.

“Apollo Global Management, a very sophisticated investor, is evidently trying to take advantage of this ‘perfect storm’ of events to buy the company for well below what we believe to be its inherent value, particularly given the improving economy and financial markets. In our opinion, that is the exact wrong time to buy the company,” the letter says.

Kelly Nugent, a spokeswoman for Apollo Global Management, declined comment.

The letter also asserts credit markets have improved and Cedar Fair may be able to negotiate with the banks holding its debt to allow some cash distributions to be given again.

Cedar Fair cut cash distributions almost in half early last year and then late last year said there would be no cash distributions in 2010.

An official familiar with Cedar Fair’s thinking said earlier this year that when Cedar Fair made its deal for Apollo to buy the company, its executives feared lenders would restrict Cedar Fair’s ability to make cash distributions under any debt refinancing deals.

“It was unclear even when we could start paying distributions at all,” the official said.

Stacy Frole, director of investor relations for Cedar Fair, said it remains uncertain when Cedar Fair’s creditors might allow distributions to resume.

She said the $11.50 per unit offer was a premium over the price when the deal was announced in December and again represents a premium over the unit price.

The Q Funding letter concludes, “We are a firm believer in this company and feel that as the economy improves, it has every chance of returning to the same unit valuations it achieved before the recession.”

The units traded as high as $23.26 in September 2008.

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