What does Apollo plan for Cedar Fair?

SANDUSKY If Apollo Global Management succeeds in acquiring Cedar Fair, the amusement park chain will
Tom Jackson
May 24, 2010



If Apollo Global Management succeeds in acquiring Cedar Fair, the amusement park chain will be only a small part of a huge financial empire.

And while it's impossible to predict exactly what will happen, theme park analyst Dennis Speigel said with confidence there will be major changes.

"When this deal closes for the Cedar Fair company, it may be better, it may be worse in the future, but it will change," said the president of the Cincinnati-based International Theme Park Services.

Apollo is paying $2.4 billion for Cedar Fair.

"I don't care what anybody says," Speigel said. "It's not business as usual."

Cedar Fair announced the deal late Wednesday. The transaction will be completed in the spring if it's approved by at least two-thirds of Cedar Fair's unitholders.

Aaron Stone, a senior partner at Apollo, said his company looks forward to partnering with Cedar Fair's management team and employees to build on the many strengths of the company.

"We are firmly committed to Cedar Fair's continued growth as an industry-leading amusement park operator," he said.

A spokesman for Apollo, Steve Anreder, declined to answer questions about Apollo and its interest in Cedar Fair.

Cedar Fair's CEO, Dick Kinzel, emphasized many aspects of Cedar Fair will stay the same.

In an interview with the Register last week, Kinzel said Apollo agreed to retain him as the CEO and chairman of the new board Apollo will form to run the company. He said Apollo also agreed to keep Sandusky as the headquarters of Cedar Fair, which runs Cedar Point and 10 other amusement parks in the U.S. and Canada. No changes in staffing are planned, Kinzel said.

Those assurances sound familiar, said Josh Kosman, a New York Post reporter who authored a new book, "The Buyout of America," which is about private equity firms such as Apollo.

Kosman said that in two years of doing research for his book, he interviewed many chief executive officers "who were given similar assurances, and soon found out they had a very active boss."

Kinzel wrote in a memo sent last week to Cedar Fair employees that Apollo has $51 billion of assets under management. Some of Apollo's companies include AMC Entertainment, the retail chain Claire's, Harrah's Entertainment, Norwegian Cruise Line and Realogy (Coldwell Banker and Century 21 Real Estate).

AMC Entertainment apparently enjoys a steady cash flow. A fact sheet posted to its Web site says it has movie theaters in 23 of the top 25 U.S. markets. In 22 of those markets, it is No. 1 or No. 2 in box office revenues.

One of Apollo's other holdings, Linens 'n Things, did not turn out so well.

Apollo bought the chain, which had hundreds of stores in the U.S. and Canada, in February 2006 for $1.3 billion. The retailer then went bankrupt and shut down all of its stores, resulting in about 15,000 lost jobs, Kosman said. Today, the business only exists online.

Kosman said Apollo is one of the main players discussed in "The Buyout of America."

Apollo was founded by Leon Black, a former banker with Drexel Burnham Lambert, which went into bankruptcy in 1990.

Kosman referred to Black as a "right hand man" of Michael Milken, a prominent Drexel executive indicted in 1989 on 98 counts of racketeering and securities fraud. According to Wikipedia, Milken's critics cited him as the epitome of Wall Street greed during the 1980s, and nicknamed him the Junk Bond King.

Kosman said the general track record of private equity companies is when they acquire a new company, they cut back on capital spending, reduce customer service and raise prices.

"Leon's track record is particularly bad, even within the private equity world," Kosman said.

On the other hand, the background of Apollo's acquisition of Cedar Fair is not typical, and Kosman finds that encouraging.

What usually happens is a private equity company forces the company it is acquiring to borrow money and take on a large load of new debt. In his book, Kosman explains that's possible because under the federal tax code, companies can deduct the interest they pay on their loans. The provision was intended to help companies build new plants and buy new equipment, but it has helped private equity companies become profitable while taking on enormous amounts of debt to buy other companies, he said.

In Cedar Fair's case, the company already had a large amount of debt. Kinzel said Cedar Fair sought a deal to help it handle $1.6 billion in debt, much of it acquired when Cedar Fair bought the Paramount chain of five amusement parks in 2006.

"This is more of a refinancing," Kosman said.