Cedar Fair: Sale? Re-Finance? What Next?

[The Interpreter]

Paramount Purchase Led To Much Of Cedar Fair's Debt:

...Cedar Fair officials feared that under any refinancing deals the company could make for its debt, the lenders would restrict Cedar Fair's ability to resume cash distributions to lenders, an official familiar with Cedar Fair's thinking said.

"It was unclear even when we could start paying distributions at all," he said.

Apollo has offered $11.50 a unit to buy Cedar Fair. When Cedar Fair announced its merger deal on Dec. 16, $11.50 represented a premium of about 28 percent over the current price.

The thinking was that investors could pocket the money from their unit sales and invest it in a way that would provide a more certain source of income, the official said.

...The go-shop period, when Cedar Fair can solicit offers from rival financial suitors, is set to expire at 11:59 p.m. Monday."Obviously, the Jan. 25th date is another key date in this process," Frole said.

Cedar Fair has not commented on whether it has received interest from other companies.

The company will likely make a statement on Tuesday, officials said....

http://www.sanduskyr...ont/1881300.txt

[The Interpreter]

The comments after this previously posted article:

http://www.sanduskyregister.com/articles/2010/01/24/front/doc4b59c348423ee556195264.txt

are rather...uh...interesting.

[thekidd33]

Another busy day for FUN. Looks like there was lots of movement (in terms of volume) between 3:30-4:00 again.

[Jamesv7]

Cedar Fair's new largest shareholder now owns 12 percent of the company.

This is getting really ugly.

Check this out

[bkroz]

That link doesn't work ^

Fixed link.

Should the deal go through at $11.50 per unit, Q Funding III will be at quite a loss. That being said, with 12% of the shares, the approval of this deal is looking less and less likely.

[Jamesv7]

Thanks you beat me to it. I fixed it to.

What they did dose not make scents to me.

[mech]

lets say the sale does not go thru, then what?

can Cedar Fair stay afloat in this stormy economy?

[Jamesv7]

I don't think Ceder Fair will make it without a Sale

[thekidd33]

So what's Q's hope here? Force Apollo to up they're offer so they can turn a quick profit? It seems like quite a risk to me. We haven't seen any signs that that will happen yet have we?

[mech]

wasnt the stock at like 9ish when the heal was announced?

what are they going to do? apollo puts a new deal out it jumps over that and we watch as the stocks become worth more and more?

[thekidd33]

I would think that if no new deal is annouced, or if Apollo does not up its offer, the stock will begin to fall again, possibly drastically if the sale is voted down. Bottom line is that this a company that cannot afford to pay its debts if the status quo holds.

[bkroz]

Doesn't the sale period end tonight? At 11:59? This will be a very important evening in the future of Cedar Fair Entertainment Company...

[thekidd33]

The "go shop" period where CF can solicate/listen to offers from companies besides Apollo ends at 11:59pm tonight. If I am not mistaken, Apollo could up there offer at anytime before the sale goes to a vote.

[bkroz]

It certainly seems to me that in order for Cedar Fair to remain out of bankruptcy:

1) A new company will have to step forward and offer a higher payout.

2) Apollo will have to offer a higher payout.

It seems incredibly unlikely to me (though I am a layman when it comes to laws and money and that sort of thing) that the deal will go through as is. Even now, the stock is higher than the proposed buyout price - in simple terms (correct me if I'm wrong) stockholders would be foolish to vote for this transaction to proceed when they can get a significantly larger amount of money in the current market...

[thekidd33]

I would have to agree with everything you said. It seems as though, especially with the largest stock holder openly opposing the deal, it will be difficult for CF to get this deal approved.

[Diamondback FOF]

Cedar Fair shares are currently at $12.78

[The Interpreter]

Well, they closed at that...that does not mean they will sell for that or you can buy them for that tomorrow....that price will be established...tomorrow.

And technically they are units. FUN has no shares.

[bkroz]

Actually, Terp, sharing is fun. Absent that day in preschool?

GYK, who can't believe he just said that.

[The Interpreter]

Someone tell Mr. Kinzel...perhaps he can have FUN sharing his severance payments with the unit holders!

Like that is going to happen.

Then again, something up Avenue Q may stop that...

Terpy, older than public pre-school...honest

[IBEW_Sparky]

I must admit, I am surprised that a prediction I made at GG on Saturday didnt come true. I was really thinking that as the end of the go shop period drew closer today, that Apollo would come in with a sweeter deal, my thought was $13 a share.

[KIfan1980]

Quote from most recently linked Article: On Friday, Q Investments issued a statement saying it "does not believe it makes sense to vote for the merger and effectively sell at $11.50 when a holder can sell in the market for a higher price."

With Q Investments continuing to buy Units above the $11.50 offer price, the deal "as is" seems doomed because 1) They are increasing their voting power and 2) Those that would be willing to vote for a sale to Apollo at $11.50 are likely to be selling pre-vote at $12+

My question - what plan does Q Investments have for Cedar Fair if no higher offer comes? While their preferred option might be a higher bid and quick sale that makes them some fast money, I can't believe that they would invest about $80 Million without having an alternative plan. What kind of power would a large unit holder like this have on how CF is run if the sale is voted down? Could they orchestrate an internal takeover/ management change?

[Cory Butcher]

KIfan1980 You have hit the nail right on the head...

Q has 12% of "NO" essentially. If the stock price goes up they make a pretty penny, and if it goes back to 11.50 they only lose 10%. They are making an extremely hedged play, a risky investment that may work to their advantage. They are raising the market price of the stock which will in all probability cause Unit holders to vote no on the transaction. Even an investor who knows little about the company and its prospects knows that the current 12.76 in the market is better than the proposed $11.50 per unit.

If this were not a limited partnership, I would think that the possibilities of a Proxy fight or hostile takeover would be very high. The man behind the acquisition is known for buying large parcels of distressed companies and other securities. I read an article that Mr Geoffry Raynor owns approximately $4 Billion in distressed assets (%7C%7CdocSource%7C%7CThe%20McClatchy%20Company%7C%7Cprovider%7C%7CACQUIREMEDIA&symbol=SBUX:US"]Cedar Fair sale opposed by big shareholder).

The "go-shop" period ended about an hour ago, so it will be interesting to see what Cedar Fair has to say later today. The fact that Q Funding wants to have such a position of ownership of Cedar Fair units makes me think that someone other than Apollo has to be interested in the stock. It is extremely obvious that Q funding wants some ownership, is it possible they would want a much larger piece of the pie if offered? I guess we will find out, but I have to wonder why Q has reportedly not contacted Cedar Fair yet. That is essentially the hallmark of a hostile takover/proxy fight. I can't wait to see how this plays out!

[Cory Butcher]

Cedar Fair to go ahead with Apollo Global deal http://www.businessw...s/D9DFG3D00.htm

A portion excerpted from the article:

The amusement and water park operator said in a filing with the Securities and Exchange Commission that it reached out to 32 other potentially interested parties during the 40-day period in which it was allowed to try to find alternative bids. In that time Cedar Fair, based in Sandusky, Ohio, said six of the parties wanted confidential company information in order to evaluate a possible deal but none of them wound up making an offer.

Here is the link to the SEC filing: http://www.sec.gov/A...50/ddefa14a.htm

Cedar Fair issued the following statement:

On January 26, 2010, Cedar Fair issued the following statement: The 40 day go-shop period under Cedar Fair's definitive merger agreement to be acquired by an affiliate of Apollo Global Management has concluded. Consistent with its fiduciary duties, our Board of Directors and its financial advisors actively engaged with a number of parties throughout the go-shop process to make certain that we achieve the best value available for all unitholders.

During the process, the Company's financial advisors contacted 32 potentially interested parties, including six strategic buyers and 26 financial buyers. Six of the 32 parties that were contacted expressed an interest in receiving confidential information in order to evaluate the Company, and entered into non-disclosure agreements. None of these parties expressed an interest in making an acquisition proposal for the Company.

The results of this process confirm the Board's continued belief that the proposed transaction with Apollo maximizes value for all Cedar Fair unitholders.

The stock price has moved down 13 cents or 1.02% to close at $12.65

I am personally surprised by this, I had thought that if no other buyer showed themselves, that today would have been treated almost as an ex-dividend date and the stock would have fallen by the optimism that propelled it. Tomorrow, now that the news is out, will be the day that propels us into the rest of this transaction.

[Beast1979]

Now all you need is 2/3 vote for it.

[thekidd33]

Over 1.3 million units of FUN changed hands today. It will be interesting to see how many more, if any, Q Investments purchased.

[Cory Butcher]

I must HIGHLY recommend that anyone here reads the following article. This is another article from the DealBook of the New York Times from the same author whose article I posted a while back. This is a lengthy read, but a very good read, and I encourage you all to read it! Cedar Fair’s Mystery: An Investor’s Game Plan http://dealbook.blog...er=yahoofinance

The article highlights the threat from Q Investments:

Q Investment's threat is a real one since the acquisition is required to be approved by a vote of two-thirds of Cedar Fair's outstanding unit holders. Q Investments is already more than one-third of the way there, since many unit holders will not bother to vote at all and the approval is measured against all of the outstanding units not those voting at the meeting.

The author also raises some questions about the motives of Q Investments after they filed a Schedule 13G rather than a 13D:

These are relatively simple rules and well known in the investment community, so perhaps Q Investments is taking an aggressive view of the 13D requirements and simply is willing to live under Section 16 in order to gain a higher real economic stake and shareholder vote. Still, if Q Investments wanted to fully challenge this transaction, its failure to file correctly is a bit of a mystery. I am left wondering what its game plan truly is.

In addition the article explains why the lawsuits that have been filed in the Erie County Common Pleas Court will not stop the acquisition. As I have explained to some of you off-board, being a Limited Partnership does change exactly what Cedar Fair LP and its board of directors has to do to satisfy their fiduciary duties. There are cases where a board of directors has the right to satisfy the continuation of the business unit, and not just satisfy the financial interests of the shareholders. The author states (And I think this is the biggest thing to take away from this article right now):

As for this litigation, Cedar Fair is a limited partnership and is governed by its limited partnership agreement, which can override the normal fiduciary duties which apply in this situation. Having reviewed the document, it is unclear to me how far these documents limit the applicability of these doctrines.

This would make a grand finance/legal case study for some college!

[The Interpreter]

Have you forgotten, as most seemed to have, the litigation filed in Delaware, and against Apollo, which, last I checked, is not a limited partnership?

The case is Ruth Walton v Apollo Global Management LLc et al, Chancery Court, State of Delaware, No. 5216.

http://www.reuters.c...123430020100121

[The Interpreter]

Also, I do not believe the last paragaph of the New York Times Dealbook blog article is correct:

...The Cedar Fair vote itself is now looking doubtful. Cedar Fair's shares are still trading about a dollar over the offer price even after announcement of the go-shop process. The prospect now is a yes vote and a loss for the arbitragers or a vote against a deal that management supports and has championed. Given this choice, I suspect that the arbitragers will likely vote no and make the difference. I am also doubtful that in this market Apollo is going to raise its price. Here, kudos have to be given to Cedar Fair's management for limiting its payment to Apollo to $6.5 million in case of a no vote, rather than the much higher $15 million that Apollo asked for. The consequence is an independent Cedar Fair with a management that has been rebuked — a not so heady prospect.

http://dealbook.blog...tors-game-plan/

As I cited from the proxy here:

http://www.KICentral...ndpost&p=358636

The proposed proxy statement does not agree:

Quote

...The Company must pay the full breakup fee of $19,556,700 if (i) the Merger Agreement is terminated by:

• either Parent or the Company because the special meeting shall have been convened and a vote to adopt the Merger Agreement shall have been taken thereat and the adoption of the Merger Agreement by the Requisite Unitholder Vote shall not have been obtained;...

(near top of page 94 of the proposed proxy statement)

So, if the merger does not occur because the holders of at least 2/3 of the units do not vote for the Agreement, Cedar Fair must pay Apollo $19,556,700. Or so it would appear.

I do agree that it does not appear likely at this time that this deal will be consummated as currently constituted.

[Cory Butcher]

Have you forgotten, as most seemed to have, the litigation filed in Delaware, and against Apollo, which, last I checked, is not a limited partnership?

The case is Ruth Walton v Apollo Global Management LLc et al, Chancery Court, State of Delaware, No. 5216.

http://www.reuters.c...123430020100121

Interpreter,

I have not forgotten that myself. The only litigation I was referring to, as was the article, is the litigation in the Erie County Common Pleas Court that has been consolidated and is directed towards Cedar Fair LP. This is the only litigation spoken of in the DealBook article. The author only said the Erie County litigation would not have an effect, therefore I only presented what the author implied, not that which he did not.

The DealBook made no note of the litigation in Delaware so I did not present the author's take, as he did not provide one.

I even explained before the quote from the article:

In addition the article explains why the lawsuits that have been filed in the Erie County Common Pleas Court will not stop the acquisition.

[The Interpreter]

My only question was if you had forgotten...Most seem to have. The Delaware courts handle a great deal of litigation since so many corporations are legally situate in Delaware. It is there that this deal will most likely encounter legal problems, if it does....especially since the entire issue of whether this is a going private deal, which requires a great deal more disclosure to the unit holders, remains. It is somewhat ironic that the New York Times blog author was among the first to publicly write about and discuss this particular issue.

At this point, I would not see der new owners at the fair until the votes and the lawsuits are done. And, unlike the noted New York Times blog author, I am not foolhardy enough to predict the results of a court action...it is far too easy to be totally, completely, 100 percent incorrect!