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

[The Interpreter]

...Q Funding maintains that the price is too low and plans to vote against the transaction and is making a clear bet that it will not go through....

http://sumfolio.com/top-3-stocks-with-significant-insider-buying-205/

[thekidd33]

So how does Q Funding expect to make money on this investment? Are they opperating under the assumtion that Apollo will up its offer? Surely they don't believe that this is a strong long term investment do they?

[The Interpreter]

One of the reasons I quoted that from that article is that is exactly my question. If this deal does not go through, I cannot see how this investment benefits Q, unless their goal is to buy Cedar Fair and replace the management...this has every hallmark of a hostile takeover, in my opinion.

[thekidd33]

What percentage of the units would they have to own in order to make/force a change in management? Would the fact that CF is set up as an LP make this sort of action easier or more difficult then if the campany were set up as a corporation?

[The Interpreter]

In order to effect a change in control, it appears a consent of the holders of 2/3 of the units is required. Getting others to agree with them that current management is not acceptable seems to be their strategy. It will be interesting to see if Q continues to hold its interest through and after any vote on the Apollo "merger" proposal.

Another very real question is whether this is a going private transaction. If it is, far more disclosure is required. The SEC has not yet approved the proxy materials.

The LP structure is one of the reasons this question arises. Note that Apollo intends to dissolve the LP just before the merger, should the vote to allow this (and all necessary approvals) be obtained.

[Ki Man]

I'm for The Spirit of the Apollo.

[74Gibson]

One of the reasons I quoted that from that article is that is exactly my question. If this deal does not go through, I cannot see how this investment benefits Q, unless their goal is to buy Cedar Fair and replace the management...this has every hallmark of a hostile takeover, in my opinion.

That's what I was wondering about. I've been too busy to look into Q. Do you have any idea how concerned we should be?

[The Interpreter]

More Bad News For Cedar Fair Deal Proponents:

The second-largest owner of Cedar Fair units has announced that it also opposes Apollo Global Management's proposed deal to buy Cedar Fair.

Neuberger Berman, an asset manager in New York City, revealed in an SEC filing that it now owns 9.6 percent of Cedar Fair's units and will vote 'no' on the deal. Q Funding, based in Fort Worth, Texas, the largest holder of Cedar Fair units with at least 12 percent of the units, also has come out against the merger.

See Wednesday's Register for analysis from experts on how the $2.4 billion deal could be falling apart.

The SEC filing:

http://www.sec.gov/A...003428/doc1.htm

I agree with the Sandusky Register editor...this deal IS falling apart...

It is extremely rare for an investment firm to vote against a management proposal for merger. The Knotts own approximately 4 percent, and have yet to announce their position.

[Beast1979]

And if it doesn't go through, what else is there for Cedar Fair? No one else is offering to buy, so most likely, Bankruptcy. Whoever is opposing this deal is either stupid, greedy, or both.

[The Interpreter]

Not necessarily. Perhaps they see current top management as benefiting tremendously from the transaction at the expense of the unit holders, which is one of the allegations made in many of the lawsuits that have been filed opposing this deal. The fact no one else came forward to compete against Apollo during the go shop period does not mean that no one else is interested in acquiring the company. It is a common conception that private equity firms do not, as a rule, compete against each other during go shop periods.

Also, as previously stated, Q may well want to acquire Cedar Fair itself and remove top management. Again, this has all the hallmarks of a hostile takeover.

[coaster_junky]

why can't dick kinzel and other people higher up in Cedar Fair buy enough stocks to have a yes vote?

[thekidd33]

why can't dick kinzel and other people higher up in Cedar Fair buy enough stocks to have a yes vote?

Because (if my math is right...and thats never a given lol) at the current unit price that would cost about $442,860,000...not exactly chump change. Not to mention they would have to find 36.3 (ish) million units that people were willing to sell.

[The Interpreter]

..because they don't have the money and no lender will lend them enough to do that? As it stands now, the holders of more than 3/4 of the remaining outstanding units would have to consent for this sale to proceed, along with the lawsuits being resolved and the necessary regulatory approvals being obtained. It's not impossible, but it is looking less and less likely on a nearly daily basis now.

Also, if there were that level of buyer interest in FUN units, the price would almost certainly go up.

[The Interpreter]

More on this:

http://www.sanduskyr...50767471612.txt

...Cedar Fair must win approval of the Apollo Global Management deal from votes representing two-thirds of its units, and unitholders who don't bother to vote will have their units counted as 'no' votes.

The amusement park company is expected to mail out a final proxy statement within days giving a deadline on when to vote on the proposed deal....

Stacy Frole, director of investor relations for Cedar Fair, said Tuesday the company will continue to communicate its message that Cedar Fair's board believes Apollo's offer was fair.

"We will continue as we go through this process to reach out to investors, including Q Funding and Neuberger Berman," she said.

Asked if Cedar Fair believes the merger agreement now appears likely to fall through, she said, "We wouldn't be able to speculate on the outcome of the vote at this point."

Lumiere said Cedar Fair no doubt has lawyers advising Frole and other company officials about what to say. Once Cedar Fair signed an agreement with Apollo, its spokespersons have little choice but to repeat that the board supports the deal with Apollo, he said.

"They'll just keep repeating it over and over again," Lumiere said....

* My original estimate that the vote may occur as early as mid-February still stands.

* It will be interesting to see what happens with the units today.

* What happens next is far too difficult to predict with any certainty. I doubt Mr. Kinzel, Mr. Falfas and their upper level management friends are sleeping as well now as they were in December, though. I think they were banking on this happening and now must worry about covenants to do this or that.

* This article also has some rather interesting reader comments as of this posting. Some prescient, some just way out in left field, if they are serious at all.

[The Interpreter]

A better article and summation:

Cedar Fair Sale Looking Iffy:

...with shares trading over $12 since Jan. 20 and daily trading volume exceeding 1 million shares 10 times since the purchase of the Sandusky amusement park company was announced, Mr. Routh said, "it leads you to the conclusion that all the institutional investors are not selling their stock, which clearly means the price per share is too low and can be renegotiated.

"Because if not, the institutional investors wouldn't be waiting for the deal to close. They'd sell now."...

Mr. Routh said he thinks there "a fairly good chance" Apollo may renegotiate the $11.50 price before a vote on the deal occurs. But how much higher it would go and when it might step in - if at all - are the big questions, he said....

Steven Davidoff, a mergers expert, former corporate lawyer for Shearman & Sterling, and a law professor at the University of Connecticut, has been tracking the Cedar Fair-Apollo deal. The transaction is "clearly on the ropes," he said. And if the deal is voted down and Apollo walks away from the deal, it could be harmful for Cedar Fair's management.

There would be "a real issue with the current management that got you into this problem," Mr. Davidoff said. "At that point, you have the issue of what do you do? Do you replace them? Do you incentivize them? … It's something the [Cedar Fair] board really would have to think about."

Mr. Davidoff said the biggest unknown is what happens if Apollo doesn't sweeten the deal, it is defeated, and Apollo walks away.

"They may decide … they don't want to get into a bidding war with themselves. They may want to come back in a year and buy Cedar Fair at an even lower price, or they may just walk away."

http://toledoblade.c...INESS03/2030358

Thoughts:

* I'd not expect the board of directors, largely seen by many, including the lawsuit plaintiffs, as less than independent, to be the next source of action about management should this deal not go through. I'd bank on others to press management...hard. Management is in debt to those who may well act, and quickly.

[thekidd33]

This is the first time I've heard anyone suggest that Apollo may raise their offer. It would seem, in my opinion, that they would have little incentive to do so. CF needs a sale/merger more than Apollo needs to add them to their portfolio. Am I wrong in assuming that if Apollo strongly desired to acquire CF that it may be cheaper for them to do so when/if they declared bankruptcy?

It should fun to watch FUN today.

[jzarley]

..because they don't have the money and no lender will lend them enough to do that? As it stands now, the holders of more than 3/4 of the remaining outstanding units would have to consent for this sale to proceed, along with the lawsuits being resolved and the necessary regulatory approvals being obtained. It's not impossible, but it is looking less and less likely on a nearly daily basis now.

Also, if there were that level of buyer interest in FUN units, the price would almost certainly go up.

If I recall correctly, didn't Kinzel even have to unload some FUN units a few months back to make a margin call?

Not to mention, I can't imagine Kinzel paying $12.08 per unit (the most recent trading price) only to sell it back to Apollo for $11.50? (That's a no-brainer even if you don't consider yourself a "financial guy" )

[Cory Butcher]

This is the first time I've heard anyone suggest that Apollo may raise their offer. It would seem, in my opinion, that they would have little incentive to do so. CF needs a sale/merger more than Apollo needs to add them to their portfolio. Am I wrong in assuming that if Apollo strongly desired to acquire CF that it may be cheaper for them to do so when/if they declared bankruptcy?

It should fun to watch FUN today.

In so few words: No, you are not wrong. And you are right to think that if Apollo really wanted the chain they would in all probability offer more per unit. Keep in mind however, that proxy materials have yet to be approved by the SEC, and there is still pending litigation against the sale.

Apollo would be better off waiting until they get some idea of how the litigation will pan out, or right before approved proxy materials are distributed to increase the offer (if that is their intentions). Also, keep in mind this is a difficult economy and Apollo, a name many of us had not heard of before this proposed merger, is wanting to purchase the chain and refinance debt at a total of $2.4 Billion. That is no small price. The biggest thing to keep in mind here when looking at how much the shareholders are getting is the debt being purchased. If Cedar Fair was not heavily in debt (and the sale were to still be destined to happen) the purchase price for Cedar Fair would not be so low per unit as this current deal. In fact, if the debt were to be some mix of cash, assets, and owner's equity, the per unit price of this transaction would be around $43.47 per unit. The debt of Cedar Fair has given unit holders a low per unit price, not necessarily Apollo! They are forking over a large chunk of capital for this merger!

Back to your original point, I too think they would have little incentive to raise the per unit price.

[The Interpreter]

Cory, actually Apollo would be buying Cedar Fair and having IT refinance the debt. Apollo would not be doing so. Cedar Fair as a business unit would remain responsible for its debt. In fact, it is contemplated that Cedar Fair, as a business unit, sell bonds in the amount of half a billion dollars and borrow one billion to finance its own sale!

See:

http://www.KICentral.com/forums/index.php?showtopic=20462&view=findpost&p=359531

Remember, Apollo is the company that stood idly by and watched Linens N Things, which it had bought, go bankrupt.

[Cory Butcher]

I was only speaking in the terms of Cedar Fair's original press release: Cedar Fair AGREES TO BE ACQUIRED BY AFFILIATE OF APOLLO GLOBAL MANAGEMENT

The transaction is valued at approximately $2.4 billion, including the refinancing of the Company's outstanding indebtedness. Affiliates of J.P. Morgan, B of A Merrill Lynch, Barclays Capital Inc., UBS Investment Bank and KeyBanc Capital Markets have provided an aggregate $1.95 billion financing commitment in support of the transaction.

I had heard about the bonds situation but that is all speculation at this point. Typically we know debt is held on the books of the acquired company, but I have seen it stated both that Apollo will be refinancing the debt and that the situation you have described would prevail.

[The Interpreter]

Press releases are one thing. Proxy statements are another. The proxy statement makes quite clear, for example, why Cedar Fair keeps recommending voting for the deal and says it is in the best interests of the unit holders. Its contract for the "merger" requires that it do so, or pay a huge monetary penalty. Cedar Fair will be recommending this sale until the moment it is voted down, if it is. Meanwhile, I doubt Apollo will increase its offer once the proxy statement is approved by the SEC, if it is. That would require the proxy statement be redrafted, re-approved by the SEC and re-distributed before a vote could be held.

[The Interpreter]

http://www.cleveland.com/business/index.ssf/2010/02/cedar_fair_looks_more_unlikely.html

[KIfan1980]

As Terpy's article indicates, Q has consistently added to their position (and even picked up the buying the last few days as the price has come down) and now holds about 17% of the shares (see link:http://www.form4oracle.com/company/cedar-fair-lp-fun/company-transactions?id=2780).

Add that to the almost 10% with Neuberger voting NO and about 90% of other unit holders would have to vote in favor of this deal. Not going to happen would be a better title for the article.

[The Interpreter]

JUST IN: CHIPS CONTINUE TO PILE UP AGAINST CF DEAL:

A new SEC filing by Geoffrey Raynor, a Texas investor opposed to the proposed acquisition of Cedar Fair by Apollo Global Management, shows that he now controls 17 percent of Cedar Fair's voting units....

http://www.sanduskyregister.com/articles/2010/02/08/front/doc4b705b982fc77586391735.txt

Between Raynor and other investment firms, the announced no votes are getting ever nearer the 33.4 percent needed to stop the deal. One must also wonder why Mr. Raynor keeps acquiring more and more FUN, unless it be to do a hostile takeover and oust current management in an attempt to maximize value.

[Beast1979]

So wait, there are tons of lawsuits piling up, it looks like they aren't going to get the 2/3 vote needed, and now there's a hostile takeover? What's a hostile takeover, who's looking to do it, and will it effect current management?

I'm confused.

[The Interpreter]

A hostile takeover is when someone management does not want to own the company takes it over. Usually, the first thing a hostile acquirer does is oust current management. Why hostile acquirers buy varies, but usually they think current management is doing a lousy job and that they can do much better. Sometimes, they do. Sometimes, they do not. And sometimes a "white knight" comes charging in on a horse and takes over, saving current managements' collective behinds, at least for a while.

And the lawsuits are separate and apart from all this, and also may well continue even if the Apollo deal does not go through...or, they may be dismissed.

Stay tuned. This ain't over.

[Beast1979]

I see. And the person (or company, whatever) who is currently looking to overtake management is.....

[The Interpreter]

Mr. Raynor and his Q firm. He has a history of this sort of thing.

[thekidd33]

Do you know anything about (or where we can read about) these past hostile takeovers the Q has been involved in Terpy?

[The Interpreter]

Q is Mr. Raynor's current investment vehicle. He is a billionaire, and has past similar activity.

Read here, for example:

http://www.decidebetter.com/Media/Forbes010807.pdf

Pay particular attention to the last sentence. Mr. Raynor bought Continental Airlines stock at very low prices after 9/11/2001....