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

[KIfan1980]

So they basically advise parks and provide them with "Years of experience and knowledge." Sounds like one heck of job, just telling amusement parks what they think is best to do!

It is a firm like this that could be usd as a consultant to a company (public or private equity) that is considering or might have agreed to invest in the amusement park industry without prior experience in the field.

Note that I am NOT saying that ITPS has had any contact with Apollo (I'm not in a position to know). I'm merely pointing out a potential way this company could be used.

[Captain Picard]

Would bankruptcy stop the exit with bags and bags and bags of money? If so I would like to see it but it would take everyone else down with them. I guess it's their own fault so I can't feel bad for them.

[The Interpreter]

It might or might not. Watch Six Flags for details (where senior management got contracts that gave them incentive awards IF the company filed bankruptcy. Honest. Will the Court allow this? Time will tell)

[Scott Evans]

Well, for starters, you linked to a Wikipedia topic in which they do not even have an article on! Secondly, Wikipedia is not a very reliable source of information since it is open source, and anybody can edit it, regardless if the edited information is credible or not.

Not sure how the missing link happened, http://en.wikipedia.org/wiki/Apollo_Management is the actual link.

Secondly you are correct about Wikipedia not always being accurate due to lack of credible info but the portfolio listed has all the sources linked. In fact this is one of the most cited articles I've seen on the site. My point is it seems like based on their cruise line acquisitions that they will invest into the companies in order to expand offerings rather than just downsize, streamline, and sell like other private equity firms do.

[The Interpreter]

Cedar Fair's swift tumble, pending sale irk investors:

The thrill is gone for many investors in Cedar Fair Entertainment Co. who watched the company's share price free-fall over the past year as the company's finances became increasingly shaky.

Many loyal Northern Ohio investors had turned to Cedar Fair years ago as a stable public investment with a generous cash distribution. But the company announced in November that it would eliminate its dividend, and now many investors are afraid their losses will be made permanent if the company's sale to Apollo Global Management goes through in coming months.

The acquisition offer by the New York private-equity firm would pay investors just $11.50 per limited-partner unit. That's about half the price that some paid to buy into the company two years ago.

Now Cedar Fair is trying to convince investors, who must vote to approve the acquisition, that if they don't sell now, they stand to lose even more. The company filed its proxy statement late on Friday, detailing the terms of the deal and pointing to economic uncertainty, especially in the amusement park arena, that could continue to hurt the company's share value. ...

... Many Six Flags investors are expected to walk away with nothing once the reorganization is complete.

Spiegel said it's unclear how close Cedar Fair was to the same fate.

But the company says its sale to Apollo is the answer to its debt problem....

"Sometimes a significant minority of shareholders would like to change something, but they're seldom organized enough to do it," he said.

However, Cedar Fair is a unique case, Hardiman said.

"This is an unusual stock and an unusual set of shareholders, so nothing would surprise me," he said.

(emphasis added)

A representative quote from a fairly long and detailed article.

http://www.cleveland...mble_pendi.html

Cedar Fair, Equity Firm Took Months To Settle Price:

...The proxy describes how Cedar Fair's board foresaw a worsening financial picture for the company, which owns 11 amusement parks, six water parks, and five hotels in the United States and Canada. Cedar Fair recognized its fiscal third-quarter earnings would be disappointing, and that the company was facing limited flexibility under its credit agreement resulting from its 2006 acquisition of Paramount Parks for $1.24 billion.

The proxy also states that Dick Kinzel, Cedar Fair's chairman, president, and chief executive officer; Jack Falfas, chief operating officer; Peter Crage, vice president of finance and chief financial officer, and Robert Decker, corporate vice president of planning and design, will remain with the company.

Mr. Kinzel is to stay three years; the others, five years each. Their annual salaries are not set but will be similar to their current salaries, the filing states.

http://toledoblade.c...3/-1/business01

[FOFreak]

Okay, I've been reading through this thread for a while trying to figure out what I missed while I was gone. Can someone put this in simple terms for me? Who owns Kings Island at this time?

[CoastersRZ]

Right now, Cedar Fair still owns Kings Island and all of the other parks. They have a tentative deal to be sold to Apollo Management for $11.50 per unit. The deal, which is recommended by the Board of Cedar Fair is contingent upon 2/3 of the unit holders approving the deal. Until, and if, that approval occurs, the parks will continue to be owned by Cedar Fair.

Cedar Fair is also in a shopping window, per their agreement with Apollo. In short, that means that Cedar Fair is free to try and find another offer with another company that is better than the Apollo deal. Given that the unit price at the end of this week closed higher than $11.50, some have speculated that there is another company that may be interested in proposing a better offer than Apollo. Or, that Apollo may be increasing their offer, in order to ensure the unit holders approve the deal.

[The Interpreter]

Excellent summary. I would add that several unit holders have filed lawsuits in Sandusky, Erie County Court of Common Pleas questioning the fairness and pricing of the deal and whether the Board of Directors acted in the interests of all concerned, including the unit holders, not just themselves and/or senior management.

Finally:

...The deal, which is recommended by the Board of Cedar Fair is contingent upon 2/3 of the unit holders approving the deal....

A distinction that sounds picky but can make a huge difference. 2/3 of the unit holders is not the level of approval needed for the deal to proceed. Rather, the consent of the holders of 2/3 of the units is needed. Given the several relatively large holdings (Mr. Kinzel, the Knott family--who own more than he does last I checked, and several financial institutions together may add up to less than a dozen owners, but a relatively large part of that 2/3 which is required. How the Knotts, in particular, announce they will vote--if they say--may well sway others. So far, they have not seemed enthusiastic about the sale).

Separately, in this morning's Sandusky Register:

Equity Expert Talks About Apollo's Cedar Fair Offer:

...Steven Neil Kaplan, Neubauer Family professor of entrepreneurship and finance at the University of Chicago and a noted expert on private equity firms, says the weight of evidence shows that most improve the companies they buy....

...private equity firms basically improve the operations of the company. There's a lot of variance, so sometimes they don't. Sometimes they do.

But if you look at large samples, the evidence is largely positive. Some of the evidence is mixed. Some of the evidence is positive. There's almost no evidence that is negative. So when you look at large numbers of deals and you look at the record, it's basically on average positive what happens at the companies that the private equity firms invest in....

There's no way Cedar Fair will be shut down. As long as the operations generate cash, they'll operate. It's really a question of how much debt they're going to end up having....

Q. That sounds like good news. Professor Kaplan, the current CEO at Cedar Fair, Dick Kinzel, has been promised he is going to stay on as CEO and run the day-to-day affairs of the company. Some of the people I've interviewed are kind of skeptical. They say that with ownership comes management, and we shouldn't take those assurances too seriously.

A. I think that's correct. Once the private equity firm owns the company, they control the company.

I think if they told the CEO they're sticking with him initially, they probably are.

If he delivers, if the company performs well, he will stay. My guess is that if the company doesn't perform well, then he will not stay.

(emphasis in the original)

Like several of the articles I have posted lately, this one deserves a full reading.

http://www.sanduskyr...ont/1853431.txt

[Monroe]

I can see one of two things happening: First the sale does not happen and Cedar Fair re-structures financially through Apollo. With the debt that Cedar Fair has, I don’t see too many companies that would jump at it without a back out plane if the loan fails. (Apollo assuming full control and ownership of Cedar Fair.) Second, I see Apollo purchasing Cedar Fair and keeping Mr. Kinzel and many others on for one year. At that point I can see another sell off of several parks: Cedar Point, Dorney Park, Knott's Berry Farm, and Valleyfair. Who will buy them? If you do not know then you have not read a word Terpy has written. Just think about who the major investors are at Cedar Fair and also who there family and very close friends are, both who have and have not worked for Cedar Fair. I can see the latter happening before the former, and even maybe written into the sale agreement and contracts some how. I'm not a legal or any thing but I have seen stranger things happen.

[The Interpreter]

An interesting article this morning!:

The firm that may buy Knott’s Berry Farm’s parent company has promised it would respect Knott’s place in Orange County history....

If another courter is wooing Cedar Fair, the company’s representatives aren’t telling.

“Nobody can say what accounts for the stock price,” Cedar Fair spokesman Patrick Gallagher said.

Before it can close, the deal would need approval from the federal government and two-thirds of the company’s current shareholders. A timeline for that process has not been set.

Very interesting word choice by Patrick Gallagher. Especially since, if Cedar Fair is careful, Mr. Gallagher cannot say as he does not know.

http://ocresort.freedomblogging.com/2010/01/11/potential-knotts-buyer-pledges-to-respect-parks-heritage/30849/

[Captain Picard]

There was nothing in the chart pattern and no news on FUN to set off the run up. Someone said something or someone bumped their head when they got up that morning.

[The Interpreter]

And/or a lot of people started wishing and hoping and talking up the mere possibility that someone else might be interested.

Then again, there was a relative run-up in the units right before the proposed Apollo 'merger' was announced.

[The Interpreter]

More analysis of the draft proxy statement, including details as to senior management's interests in the new company if the 'merger' goes through:

http://www.cleveland...es_to_keep.html

For what it is worth, FUN closed at $11.98 today, or more than four percent more than the proposed Apollo buy-out price...

[The Interpreter]

Equity Firm Supports Cedar Fair Parks:

The wealthy New York private equity company planning to buy Cedar Fair wants everyone to know it loves roller coasters.

Apollo Management, which has said almost nothing publicly about its offer to acquire Cedar Fair, issued a statement Monday assuring customers at Cedar Point and other Cedar Fair amusement parks that it respects the parks....

Frole also provided additional information on Cedar Fair's "go shop" period, the 40-day period in which Cedar Fair is allowed to seek other offers to find out if unitholders can obtain a better deal. The go-shop period expires Jan. 25.Cedar Fair hasn't commented on its discussions with other possible suitors, but Frole said if Cedar Fair received a better offer, it would make that offer public.

"If we were to receive a superior proposal, we would make that announcement," Frole said....

a. This one, in particular, deserves a full reading.

b. Again, some very careful wordsmithing by the "Equity Firm" that "supports Cedar Fair parks" and by Cedar Fair's spokesperson, in this case Ms. Frole.

Stay tuned...it will also be an interesting day to watch FUN in progress...

http://www.sanduskyr...ont/1857053.txt

[Beast1979]

I've officially given up trying to keep up with this. Tell me on Jan 25 whether they found someone else or not. Tell me again when they vote for or against it. All I want to know at this point is who will own Kings Island in June and will it effect the parks much, so wake me up when we have the answer.

[The Interpreter]

We already have the answer to one of your questions...Who owns the parks in June will affect Kings Island. A great deal. Whether or not whoever it is got a great deal or is still trying to get one...

[Beast1979]

So despite all the promises being made by Apollo now, they would still probably replace management at Cedar Fair parks?

[The Interpreter]

Little new here, but here it is:

http://www.morningjo...7a294257178.txt

So despite all the promises being made by Apollo now, they would still probably replace management at Cedar Fair parks?

As was said earlier by an expert I quoted, if senior management attains the results desired by the park's owner, it will be retained, at least for a while. If not, they will be gone...all or one or more of them.

One mistake a lot of people make...yes, big people at the top can change lots of things for good or ill...but little people who work hard and play by the rules can also change lots of things for good or ill...and to be quite honest, Cedar Fair has not been the employer of choice for quite a few people the last several years. Incentive after incentive, benefit after benefit has disappeared, while senior management took home increasingly larger sums of money and units and options for more. At least some of the lower graded people will shed no tears if senior management is at some point dismissed....particularly given that, under the negotiated terms, even if the former FUN bigwigs are fired for cause, they leave with large packages full of money and other benefits.

[IBEW_Sparky]

Yeah no kidding... I would LOVE to have a job where I could be a complete screw-up and get fired for it and still walk away with 3 mil

[Cory Butcher]

For those of you interested in (or already hold) a career in Corporate Law, Corporate Finance, or just business in general; I recommend that you read the following article I have posted. Of course if you are interested in this proposed sale of Cedar Fair to Apollo I think you too will find the following article to be an engaging read. There is some jargon in the article as it takes a legal approach to discussing the transaction, however it brings up some interesting points about the transaction. Roughly the first half of the article will be of importance to most reading this thread. The last half will be more interesting to those wanting to understand the legal implications of a large deal like this! Cedar Fair's Management Entry Ticket

Some intriguing items from the article:

In this case, Cedar Fair’s management participation has to hurt since Cedar Fair’s problems arise from a failed management decision to buy a rival amusement park operator, Paramount Parks. Unit holders will lose, but management will now get a second bite of the apple with more upside. Clearly, Apollo must think they can do better and that is Apollo’s call as a private investor. It is still a bitter pill to swallow for the public shareholders.

Speaking to the legality of the transaction:

The broader issue is whether this is a going-private transaction under the federal securities laws. The parties have not filed it as one. Yet, management is co-investing in the acquired company and has entered into term sheets for employment agreements.

Is senior management being retained solely as a management team, or is there something else behind the curtain that would allow the retained management team to be partners in the ownership of the company? Another quote on this:

Senior management will also invest $6.9 million and receive an additional grant of options equivalent to 2.76 percent of the newly private company. This means that senior management will own approximately 4 percent of the post-buyout company, a percentage of equity ownership approximate to the amount they own now, assuming they can exercise their current options, which are far, far underwater.

http://dealbook.blogs.nytimes.com/2010/01/13/cedar-fairs-management-entry-ticket/?partner=yahoofinance

[The Interpreter]

The learned author seems to not have noted, or not deemed credible, this part of the draft proxy notice:

...If requested by Parent pursuant to the Merger Agreement, the Company and the General Partner will use commercially reasonable efforts to cause the Company to be converted into a limited liability company under the laws of the State of Delaware and in accordance with the Delaware Revised Uniform Limited Partnership Act, as amended ("DRULPA"), and the Delaware Limited Liability Company Act, as amended ("DLLCA") immediately prior to the closing of the Merger. If converted into a limited liability company, the Company, pursuant to Delaware law, will be deemed to be the same entity as Cedar Fair prior to the Conversion. Upon the Conversion, each LP Unit will be converted into one unit of membership interest in the Company and each right to receive one LP Unit previously granted will be converted into the right to receive one unit of membership interest in the Company. The holders of membership interests in the Company will not have any rights with respect to voting or distributions (other than in respect of liquidation) with respect to the Company, and the units of membership interest will immediately be converted into the right to receive the merger consideration for each unit of membership interest. The rights of the holders of membership interests in the Company will be governed by the limited liability company agreement of the Company which will come into effect at the same time as the Conversion is accomplished (immediately prior to the Merger) (the "LLC Agreement"), a copy of which is attached as Annex B. Consummation of the Conversion is not a condition to the closing of the Merger....

Through such a maneuver, it is apparently the opinion of the various counsels involved, that issues of treating this as a "going private" deal are avoided. Knowing the author, as I do, I suspect he thinks this maneuver is ineffective. I would presume that is also the contention of counsel for the plaintiffs in the various litigation filed in Sandusky against the Board of Directors alleging breach of fiduciary duties as well...

[The Interpreter]

FUN today closed at $11.98...or more than four percent MORE than the proposed Apollo acquisition price. The "go shop" period continues...

[Diamondback FOF]

Same price as Monday. I thought maybe after the short jump it would continue to rise slowly.

[The Interpreter]

S&P Takes Cedar Fair Off Watch For Downgrade:

...Ohio-based theme park operator Cedar Fair LP, faced with a very difficult economic environment, said a month ago it would sell itself to an affiliate of private-equity firm Apollo Global Management for about $2.4 billion, or $11.50 a share.

The ratings firm, which has Cedar Fair three notches into junk territory, had put the company on watch for downgrade shortly after the transaction was announced. S&P said it could still downgrade the rating if the deal doesn't go through....

http://online.wsj.co...latestheadlines

[The Interpreter]

More proof you can't believe everything you read on the Internets:

From a blog on The Motley Fool, and an author who likes companies with high dividends (to get the income in the face of possible coming inflation):

...Companies with high dividends that I like now are Otter Tail, Cedar Fair, Cincinnati Financial Corp., and United Guardian (UG is a twofer because it is a fast-grower with a strong dividend)....

http://caps.fool.com...591746189589634

Apparently the author is oblivious to the Cedar Fair situation, but writes as if he knows what he is talking about anyway:

* The distribution has been suspended, and had been halved before that.

* The company is very much in play, and can be characterized as a relatively risky short term play for new investors. By buying in at $11.98, IF ONE KNOWS THE SITUATION, one is betting another buyer will show during the "go shop" period, Apollo will raise its bid, or is hoping for short term gyrations that will allow one to buy in and sell out for more. Otherwise, if you are buying for long term investment, there is a good chance all you have done is bought at $11.98 or so and then will be selling out at $11.50.

In any event, the writer apparently is not aware of any of this...pity those who just follow the recommendation without further research . . .

Also, if this is that wrong, what else that he writes is also indicative of the same level of high quality, in depth spouting off at the hip without knowledge?

Oh, what is his last sentence? I am not making this up...

...And always remember: don't be foolish, fools.

[The Interpreter]

Cedar Fair Deal Set For Hearing:

A hearing is set for next week in the lawsuits filed to stop a purchase of Cedar Point’s parent company.

New York equity firm Apollo Global Management has offered to pay $11.50 per share to purchase Cedar Fair Entertainment Co., the parent company of Cedar Point and other amusement parks.

Since then, at least a half dozen Cedar Fair shareholders have filed class action lawsuits claiming Cedar Fair’s management did not get the best possible price for the company, whose shares traded at more than $29 per units as recently as 2007.

Those involved in the cases will gather Thursday at Erie County Common Pleas Court to discuss several motions and possibly consolidating the class action lawsuits filed to stop Apollo Global Management’s acquisition....

http://www.morningjournal.com/articles/2010/01/15/news/doc4b509b02ac150700895817.txt

[The Interpreter]

And now the complete version of that article is online. In it, Cedar Fair counsel speaks:

..."If you know the history of how Cedar Point's been run and you really understand how management historically has run Cedar Point, I think you'll realize the idea of a breach of fiduciary duty is just outside the scope of the possible alternatives," Murray said.

"The management, from Kinzel on down, has always run that business to the best interests of the shareholders," he said, referring to Cedar Fair President, Chairman and Chief Executive Officer Dick Kinzel. "He's really been a very sensitive CEO to his fiduciary capacities, his fiduciary obligations."...

http://www.morningjournal.com/articles/2010/01/16/news/mj2159702.txt

.

[The Interpreter]

Buried in the business briefs of The Richmond Times Dispatch today, we find this curious item:

...Cedar Fair LP, which owns Kings Dominion, seeks to extend the maturity of some debt and waive a change-of-control requirement that would facilitate the theme-park operators buyout by Apollo Management LP....

http://www2.timesdis...-214605/317944/

Stay tuned...there may be much more to this little thing than we have seen before. Extending the maturity of debt...we knew at least one of the debt covenants was in danger of being breached on January 1, 2010...a date that has come and gone without apparent drama, until now.

Curiously, there do not appear to be any SEC filings or any other news about this...yet.

[The Interpreter]

Cedar Fair CEO Dick Kinzel says he's tired of having to concentrate on debt and finances.

He says he wants to renew his focus on running amusement parks....

"I'm an operations person. I'm not really a finance person," he said in an exclusive interview detailing how the deal came about....

Stephen Knott, a member of the family, said he still doesn't know how he will vote. He said he believes Apollo plans to buy Cedar Fair, hold it for several years, then sell it again.

"I can't speculate," Kinzel said....

Kinzel said he's known the Knotts since 1997, when they sold the amusement park to Cedar Fair. He said he talked to Steven Knott on Monday."We weren't able to talk to them 'til the proxy came out," Kinzel said.

http://www.sanduskyr...ont/1868874.txt

Separately:

The former CEO of Vail Resorts in Colorado said the employees and customers of Cedar Fair have little to fear if working for Apollo is similar to his experience.

"I have to tell you that meeting and getting a chance to work with the Apollo people was the most fulfilling, satisfying professional experience I have ever had," said Adam Aron, 55, CEO and chairman of Vail Resorts from 1996 to 2006. "It was always our theory at Vail, which Apollo supported all the way, if you really take good care of your customers, your employees and your community, the shareholders will do just fine."...

Typically, a private equity company buys a healthy firm it can milk for quick profits, Kosman said. Apollo acquired Vail after the previous owner went bankrupt.

It's possible the Cedar Fair deal could be a similar situation, Kosman said, as Cedar Fair essentially is using Apollo to refinance a crushing debt.

http://www.sanduskyr...ont/1868906.txt

[The Interpreter]

Buried in the business briefs of The Richmond Times Dispatch today, we find this curious item:

...Cedar Fair LP, which owns Kings Dominion, seeks to extend the maturity of some debt and waive a change-of-control requirement that would facilitate the theme-park operators buyout by Apollo Management LP....

http://www2.timesdis...-214605/317944/

Stay tuned...there may be much more to this little thing than we have seen before. Extending the maturity of debt...we knew at least one of the debt covenants was in danger of being breached on January 1, 2010...a date that has come and gone without apparent drama, until now.

Curiously, there do not appear to be any SEC filings or any other news about this...yet.

"according to people familiar with the request":

...Cedar Fair seeks to alter the change-of-control waiver so existing debt may remain in place after Apollo buys the company, the people said....

http://toledoblade.c...INESS03/1160358

I assume (and I do emphasize assume) this means FUN is requesting at least temporary relief from some of the debt covenants on the condition that the "merger" goes through. This request must be to the bankers, else we would have seen something more public on this, like an SEC filing.

This whole situation just gets curiouser and curiouser...this...and a hearing Thursday in the litigation alleging breach of fiduciary duties...the go-shop period continuing until January 25, the requirement of consent of the holders of 2/3 of the units for this to go through, the continued silence of the Knott family even after Mr. Kinzel says he has now spoken to them...

This whole situation is murky...

If this deal, or another merger/sale, does not go through, things are going to get very 'interesting' very quickly for FUN. I still contend, as I have from the beginning, that there is no way on earth Mr. Kinzel would be advocating his losing control of what he sees as his company unless there were no other feasible alternative. And before someone tells me Mr. Kinzel did not control Cedar Fair, one of the major reasons the company was set up as an LP was so that unit holders would not control the company, but share in distributions while having little to no say in the operation of the company. The general partner controlled the company, and instrumental in that was one Dick Kinzel.

Yes, the same Dick Kinzel who will profit handsomely from this deal if it goes through, while individual unit holders, whether they voted in favor of the deal or not, will be required to cash out at the proposed $11.50 per unit, with no dissenting unit holders' right to cash out at an appraised price as would normally be the case.

On the other hand, what happens if the holders of at least 1/3 of the units vote against the sale? Where is financing going to come from? Is the company a going concern? Are the rather dire possibilities mentioned in the proposed proxy probable as opposed to just possible? And Mr. Kinzel has now admitted he is an operations guy, not really a finance type. (Is this not the same Dick Kinzel who assured one and sundry that many efficiencies would happen with the purchase of Paramount Parks and the purchase price was fair and reasonable? Just askin')

Getting the holders of 2/3 of the units to agree to this deal is going to be...interesting.