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 Dec. 16. 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 on Dec. 17, 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 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.
Here's what commenters had to say:
Duped Again wrote on Dec 21, 2009 10:00 PM:
" About a year ago, the sale price of cedar fair was twice what Apollo is offering. When you have to re-finance with a company founded by assoicates of Michael Milken, you must be in trouble. Probably get a better deal from PayDay loans... "
hancrack me up wrote on Dec 20, 2009 1:42 PM:
" I hope they do change it to a casino. At least then you have a CHANCE at getting money back. No amusement park belongs in SinDUDski because there's nothing amusing about the town or area- Except the diabolical scamming local government gets away with. That part's hilarious. "
Perkins Resident wrote on Dec 20, 2009 12:31 PM:
" It seems like everyone is in agreement that Kinzel will/must go. That is everyone except for him... "
6079 Smith W wrote on Dec 20, 2009 10:05 AM:
" For those bemoaning the fact that they've lost so much money on the fall of their investment in (FUN) - my sympathies.
Going forward, I have one word - diversification.
A good investing rule of thumb is to never, ever have more than 5% of your total portfolio assets in the shares of a single co.
And it you’re thinking of joining one of the lawsuits; consider that technically you’re only suing yourself and in the end, only the lawyers make out.
Take the money and run. You may be poorer, but hopefully you’ll be wiser and I don’t know anyone who ever said that education was cheap. "
nowayout11 wrote on Dec 20, 2009 9:58 AM:
" Mr. Kinzel has done everything he has promised Cedar Fair Employees he wouldn't with every memo and every action he has taken. He has hidden behind his "in the best interest of employees and unit holders" for years as he ensures his future is solidified while we, as employees, have lost everything. He has literally taken everything away from us including our respect for him and Cedar Fair and we still work like dogs and are loyal, but not to him, to ourselves because we still have our self respect, just not for him or his officers. "
mrlizzzard wrote on Dec 20, 2009 9:57 AM:
" A brief point on the gambling.In the past when riverboat gambling was legalized on the waters of the US,the islands and Sandusky Bay were included in that legislation.
Some thought that is why Mr Paladino took Kelleys and expanded the boat line.Others think that just after that legislation passed that Cedar Fair tied up the real estate along the causeway. "
6079 Smith W wrote on Dec 20, 2009 9:50 AM:
" @ Grayghost:
Thanks for pointing out the Journal story, but it’s largely journalistic trash. The writer had to go back forty yrs. for some potential innuendo sleaze?
Large institutional investors like public employee pension plans, insurance cos., foreign sovereign wealth funds, college endowment funds, mutual funds and others control much of the private capital in the U.S. and the world.
These large institutional investors also often invest with private equity firms like Apollo.
Individual investors are lucky if they control 10% of the action. The institutional investors control the other 90%.
If you think that this is a bad thing consider that the retiree from a public or a private co. getting a pension or annuity check is the recipient of all this institutional invested capital.
These institutions need to make a profit or the retiree goes without a check and the small investor who's saving for their retirement takes a loss.
Apollo Global Mgmt. will undoubtedly eventually need to clean house and make changes, but their intent is to make the Cedar Fair into a stronger more financially viable co. I wouldn’t lose any sleep over it. "
Costanza wrote on Dec 20, 2009 9:39 AM:
" Can't imagine Apollo would be dumb enough to keep Kinzel on in any capacity. He was directly responsible for the fall of Cedar Fair. It had nothing to do with economy. It was all bad decisions that trail back 6 years that casused the collapse of Cedar Fair. And he is still making stuuppid decisions. Taking a dud ride from one park to another? Why would you do that? He just threw away a couple million to move this ride for what? There was not ROI on this one. But again, the board of directors just sit there like puppets and shake their heads the way Kinzel wants them to and the public intrest is not protected again. A hand picked board of directors leads to hand picked problems and I learned that first hand. I lost 48% of my nest egg. I may have to go back to work in a few years if I cannot find a real stock to invest in. Thanks for the ride down the toilet Kinzel. " "
watch'n it all wrote on Dec 20, 2009 9:36 AM:
" I see a lot of speculation about casino gambling due to the association Appollo has with casinos. The last I checked casino gambling is not legal in this part of Ohio. Even if this company was interested, it is up to the voters. What makes you all sure that the voters want it? Could be the ownership of this theme park could offset profits made elsewhere for Appollo. It's called diversification. "
Quicksand wrote on Dec 20, 2009 9:33 AM:
" Thank you, Mr. Jackson, for finally bringing some light to who this company is. If some think it's doom and gloom you are reporting, then maybe they should learn to read the writing on the wall. I hope the city does the same and begins to put some of their eggs into another basket. (Have to make the other basket first, though!)
Re Oliver Hardy: You are so correct that people love beaches! There is something about the feel of sand between your toes and the sound of the waves and the dose of Vitamin D from the sun does wonders for your body long after a day spent in it. And Sandusky, being right on the water, has no beach except Cedar Point. They used to have general admission which was cheap enough to enjoy the day at the beach, but Kinzel saw $$ signs and took that away.
I have to wonder, why Kinzel bought Paramount Parks in the first place? Hoping it would relieve his debt load? Isn't that kinda what is getting America in trouble down the road now with Obama? Let's SPEND our way out of a great recession! On goods made ONLY in China! I can see how spending might keep good jobs afloat, but not if the jobs have already floated overseas! What Obama doesn't realize, and probably never will, is that when we SPEND money we don't have, on goods made in another country, the only people we are helping are in another country! We need to begin to HELP ourselves! Wouldn't surprise me if Apollo doesn't have its real roots overseas.
My guess is Kinzel will be gone in 2 years. All the other parks will be sold off individually--too bad the city won't be able to buy the goose that lays the golden egg!--and Apollo will put up a casino, after making Cedar Point a separate township. This could be more like 5 years, but I don't think they want to hold onto all that debt that long. And Cedar Point will become the new entry way into America for the Terrorists! This could be where Kinzel's greed has led. Is bankruptcy so terrible? Haven't companies filed bankruptcy before only to come out stronger than before? Does Kinzel believe they will not change their mind on their "agreement?"
All we can do is wait and see, but the city better be preparing NOW! "
Grayghost wrote on Dec 20, 2009 8:42 AM:
" Cedar Point took on way too much debt by buying out other parks and so it has come to this. The Lorain Journal today has a different slant on the story. They gave the background/resume of the new owner. Appollo owns one business that operates one of the world's largest casinos--need I say more. "
Perkins Resident wrote on Dec 20, 2009 8:38 AM:
" I highly doubt this new company will "retain" Kinzel and crew for too long. After all, they are the ones that ran this once great company into the ground with a mountain of debt. The first thing Apollo should do is clean house. "
Oliver Hardy wrote on Dec 20, 2009 7:35 AM:
" Cedar Point has one long and wide beautiful beach. Is this beach utilized much by the Cedar Point guests? From what I have read, it was the beach that brought tourists to Cedar Point long before the rides came. Not everyone wants to ride the rides. I could see a separate admission charge to use the beach only. To cut down on parking problems, Cedar Point could have busing from a parking lot away from the amusement parking lot.
Maybe Cedar Point needs to look at its roots to bring in the beach lovers. Check out these neat beach photos:
I can see many people taking mini vacations to a great looking beach. Take advantage of that beach, Cedar Point. Not everybody loves amusement parks but people in general love the beaches. "
6079 Smith W wrote on Dec 20, 2009 6:37 AM:
" I've read that Apollo intends to go public next yr.
So, if investors still want to own shares in Cedar Fair, they can do so indirectly through the IPO.
And lastly, Apollo isn't paying pay $700 million and incurring $1.6 billion in debt order to destroy the co. - get real.
Economics and personal finance should be taught in the U.S. starting in elementary school. The level of ignorance regarding finance in the richest country in the world is appalling.
It’s little wonder that the world has eaten our breakfast; is currently consuming our lunch and has its hungry eye on our dinner. "
6079 Smith W wrote on Dec 20, 2009 6:23 AM:
" Come on Mr. Jackson, I understand that Josh Kosman is hawking his book, but do you have to shill for him?
You make the whole deal sound so sinister with a dash of cloak and dagger.
Perhaps you should note who are the large institutional investors that currently own shares of equity in Cedar Fair:
And, you should also note that CalPERS, the large California employee pension fund and Abu Dhabi Investment Authority hold shares in Apollo Mgmt.
Ooooh…Abu Dhabi…the Arabs are coming, the Arabs are coming!
And for special effects, you have to bring in the name of the 'infamous' Michael Milken who was never convicted. But through his actions helped to unlock a lot of unused potential for shareholders in many U.S. corporations.
What Milken did is now a common financing practice that is even used by the U.S. govt. itself.
Plus the man has done a lot of good charitable work since his earlier Wall St. days. The man should be hailed, not castigated.
Since Apollo has offices worldwide, how do you know that Cedar Fair won’t soon have amusement parks across the globe competing against the parks of America’s favorite rodent? Not everyone loves Mickey ya know?
This transaction is all above board and the shareholders are getting the best deal possible under the circumstances.
Having looked at Cedar Fair’s financials, I agree with Mr. Kosman, that ‘This is more of a refinancing.’
The amusement park business is extremely capital intensive, and with commercial credit as tight as it is, IMO Cedar Fair either had to find a buyer or eventually file for bankruptcy like Six Flags.
If you can't get a bank to give you a line of credit where do you go - a payday lender – the govt.?
Lord knows, too much capital area has been flowing out of the, it’s nice to have some large amounts of institutional money flowing into little ol’ Sandusky.
Kindly write another column would ya Mr. Jackson? Only this time try a little harder to find the silver lining, ‘cause there is one. "
Infoman wrote on Dec 20, 2009 5:39 AM:
" I certainly hope the City of Sandusky does not engage in tax increases during this fragile process. Sandusky always has that one huge target in slow economic times. "
pntbutterandjelly wrote on Dec 20, 2009 5:20 AM:
" This could get very "interesting". "