Cedar Fair agrees to add two board members, Q will drop suit

Posted | Contributed by Jeff

[Ed. note: The following is a partial unedited press release. -J]

Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and active entertainment, today announced that it has reached an agreement with its largest unitholder – Q Funding III, L.P. and Q4 Funding, L.P. (“Q”) – that will allow Q to participate actively in the Company’s selection of new directors.

Under the agreement, the Company will increase its Board from seven directors to nine immediately following the Company’s 2010 Annual Meeting of Unitholders, scheduled for June 7, 2010. The two new Directors will be selected from a list of candidates developed by the executive search firm of Spencer Stuart, which Q has retained, based on criteria developed by the Company and Q. The Company and Q will mutually agree upon two Class I Directors, with a term expiring at the Company’s 2013 Annual Meeting of Unitholders. If the Company and Q are unable to agree prior to the Company’s 2010 Annual Meeting of Unitholders, then the Company and Q will each select one Class I Director in their sole discretion. The Company has agreed to reduce the Board back to seven directors by the Company’s 2011 Annual Meeting.

In addition, under the agreement, Q has agreed to voluntarily dismiss the action it filed on April 29, 2010 in the Court of Chancery of the State of Delaware against the Company and its general partner. Q has also agreed to vote all of its units on the two matters to be considered at the Company’s 2010 Annual Meeting of Unitholders as recommended by the Board.

Read the entire press release from Cedar Fair.

Jason Hammond's avatar

Interesting. I'm glad they were able to come to an agreement. Less money wasted by spanding time with legal crap.

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Gemini's avatar

I'm cross-posting from PointBuzz because I know there are people here who can at least guess at my question. :)

... shouldn't the addition of two new board members be voted on by all unitholders? I don't doubt Q's intention, or the ability of the search firm to find quality board members, but how are these two directors hand-selected by Cedar Fair and and two firms holding "only" 18% of outstanding units?

Or am I missing something ... which I admit isn't all that unlikely! :)

Walt Schmidt - Co-Publisher, PointBuzz

"Q has also agreed to vote all of its units on the two matters to be considered at the Company’s 2010 Annual Meeting of Unitholders as recommended by the Board."

I think they may be voting for it at the meeting. The above statement is from the press release and might be how they are going to do this.

What I find interesting is they must want to keep these two particular board members on the board and must not care about keeping the guys up in 2011?

Wow, this is a pretty blatant face saving measure. I believe Dick and the gang thought they were going to lose that fight. So, if you can't beat them....

My initial reaction is that this isn't necessarily good news for the company if you feel like real change is needed. 2 votes of 7 wasn't going to lead to a great deal of influence. 2 of 9 even less so...particularly when you consider that at least 6 of those have not shown a real ability to say no to Dick.

Jeff's avatar

I had the same reaction. Two new members doesn't displace some of the crustiness in place now, it only dilutes it slightly. I'd rather see directors outright replaced.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

In order to shrink the board back down to seven by 2011, I nominate Dick Kinzel to resign his seat since having a CEO on the board, although done often, is just stupid and does not foster good corporate governance. If he wants to give up his CEO position, he could remain on the board and we could find someone else to boot.

I'd also like to nominate Steven H. Tischman - the yes man whose firm did the financial analysis on the Apollo deal and said $11.50 was a great price for unitholders.


mlnem4s's avatar

Somewhere I saw a name of a representative from Q Funding (I believe it was a Steve?) who is overseeing the Q Funding investment in Cedar Fair. How many people have sent him, or anyone else at Q, a nice little letter spelling out how Kinzel & Co. operate things at Cedar Fair? I am sure they would like to read some of the real dirt about what goes on at the company they just spent millions investing in.

I know one thing, "the boys club" of Cedar Fair are in a corner with nowhere to run. If they had any integrity and were real men they would read the writing on the wall, say thank you for all the years of compensation they have received, and hit the high road NOW. I believe we are in the very early stages of seeing a revolution in corporate management at Cedar Fair.

That's an awfully dramatic post. Do you think that Q invested millions without knowing a little bit about the company? What do you know about CF's modus operandi that Q doesn't?

I just don't expect to see sweeping changes to the way the company operates. There will be some changes I'm sure but I doubt that Q is going to be interested in reducing the number of trash cans.

Jeff's avatar

Q wouldn't have any control anyway. Their intention is to get people on the board who offer a fresh point of view since the current management and board is so entrenched and out of ideas.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

mlnem4s's avatar

I tend to disagree that Q doesn't have any control. They do in a very significant way; by sharing their investment opinion they blocked the sale to Apollo via encouraging until holders and other investment companies to vote no. That is real power in my opinion. Persuasion is a valuable tool at their disposal as we see again with gaining two seats on the board. Dick my be playing comes by uping the board count to nine diluting their voting power but it is the placement of these two new individuals that matters most.

Obviously Q looked at the financials for the investment, compared it to other entertainment companies, and sees there is significant growth opportunity in ways that Cedar Fair refuses to accept or attempt. By having "ears in the board room" they now have access to the day-to-day thinking of Kinzel and his management team. Frankly, I think they are going to be shocked at the "mom-and-pop" mentality and the "conservative boys club culture" that has ruled for far too long.

It's like a chess game, one move at a time until they can claim victory.

You seem pretty excited about the idea of massive changes. What changes would you most like to see with regards to overall company growth?

mlnem4s's avatar

Massive changes? No. Fundamental changes? Yes.

Jeff's avatar

mlnem4s said:
I tend to disagree that Q doesn't have any control.

Let me rephrase then, they won't be controlling how many trash cans there are, as you put it. Of course they have influence, but they're not going to be able to have impact on more day-to-day decisions. Board members, who will not be "owned" by Q, will certainly influence strategic decisions as they should.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

The changes requests are still fairly vague. What "strategic" or "fundamentally" changes would everyone like to see?

I still agree that change is coming in some form. But how much and what type will be unknown for some time. In the mean time I'd love to see some speculation on what changes need to be made.

mlnem4s's avatar

I re-read my original post and nowhere did I say anything about day-to-day decision making, such as "trash cans." What I did say was "how Kinzel & Co. operate things at Cedar Fair." Sitting in a board room will afford them ("Q") the opportunity to question results, planning, policies...all the things that are green lighted over and over by Kinzel's hand picked board currently. Some questions Q appointed members might have could very well be things that relate to day-to-day operations but not specifically in terms of "how many trash cans do you have on the midway and way?" I have sat on a board before and often I did ask questions that related specifically to operational policies which I felt affected the bottom line, amongst many other things. If I am elected to serve on a board because of my background skills, experience or knowledge you better believe I am going to ask a CEO and President of a company/organization "why?" questions....especially if I see areas of concern or finanical numbers that are falling. That is the duty of a board, to protect the investment of shareholders first and foremost while setting the pace for future growth and earnings. It is why I feel it is unethical to allow any CEO or President of a company to serve on a board of his own company, it opens the door to ethical and integrity issues in my opinion.

Jive2 I really don't want to say too much specifically, but...what I can say is the CEO needs to drop the attitude that "Cedar Fair is MY COMPANY and nobody is going to tell me how to run things." That would be the first place I would start in making changes. Dick Kinzel has been compensated fairly over the years for his work, just as unit holders where rewarded nicely for their investment. His little sly moves as of late don't fool anyone, it is all a power grab to keep him and his inner circle protected. Things like that work when you are a private company and have nobody to report too. Their mistake was going public back in the 1980's if they didn't want accept the possibility of outside influences. Now that they are a public company they MUST respond to the constructive criticism, questions about decisions being made and calls for change. I will give them some slack as they have never been in this position before of such anger and resentment towards the company BUT that does not excuse the dismissive attitudes, lack of integrity, and what I believe to be unethical actions green lighted by the CEO.

Last edited by mlnem4s,

Funny you should mention "integrity". I was with the company when Dick made a big push to add Integrity as the fifth cornerstone of Cedar Fair. There were lots of raised eyebrows when that happened for reasons you might surmise.

Does it show Intergrity when you appoint your son GM of a park after numerous examples that show he is not fit for that position? Is Integrity on display when you pass off unrealistic food price increases as palatable because "hey...they have to eat"?

jive2 said:
You seem pretty excited about the idea of massive changes. What changes would you most like to see with regards to overall company growth?

I realize this question wasn't directed towards me, however, I will attempt to answer with my own opinions.

Evers since the merger with Paramount the number one priority of Cedar Fair has been cost-cutting. Kinzel himself has said they have cut costs to the bone. The company has been lacking strategies to drastically increase revenue. Much like SF has done, I think CF needs to up sponsorships and other corporate partnerships, offer new services to guests inside the park, and offer new methods for out of park spending.

To accomplish the above stated goals I also believe the company should attempt to develop or even purchase a variety of reconizable individual brands (rather than try to nationalize the meaningless "Cedar Fair" name into something it can never be).

Jeff's avatar

I've said from the start that "Cedar Fair" as a brand was cosmically stupid. It's like hyphenating your name and calling it a company (Cedar Point-Valleyfair, for those who haven't been playing along). Maybe that works for Dunder Mifflin, but it's pretty silly for an amusement park company.

But you really do get to the point that cost cutting is a one-sided, short-term fix that can't exist without strategic growth on the other side of the balance sheet. That seems obvious, but you know, when you just "want to get back to running parks..."

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

I like what WoF Guy said. That actually make a good amount of sense.

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