Cedar Fair agrees to be acquired by an affiliate of Apollo Global Management

Posted Wednesday, December 16, 2009 10:25 PM | Contributed by Jeff

[Ed. note: The following in a partial, but unedited press release. -J]

SANDUSKY, OHIO, December 16, 2009 -- Cedar Fair, L.P. (NYSE: FUN), a leader in regional amusement parks, water parks and active entertainment, announced today that it has entered into a definitive merger agreement to be acquired by an affiliate of Apollo Global Management, a leading global alternative asset manager.

Under the terms of the agreement, Cedar Fair unitholders will receive $11.50 in cash for each Cedar Fair limited partnership unit that they hold, representing a 43% premium over Cedar Fair’s volume weighted average closing unit price over the past 30 days and a 28% premium over the closing unit price on December 15, 2009. 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.

The board of directors of Cedar Fair has unanimously approved the merger agreement and has resolved to recommend that Cedar Fair limited partnership unitholders adopt the agreement. Cedar Fair’s chairman, president and chief executive officer, Dick Kinzel, said, “We have considered a wide range of strategic alternatives over the past several years. After considering these strategic alternatives, we have concluded that the transaction with Apollo is in the best interest of our unitholders.”

“This transaction allows Cedar Fair unitholders to realize significant value from their investment in our Company over recent trading levels,” added lead director, Michael Kwiatkowski. “Apollo has a strong track record of growing businesses, and its desire to add Cedar Fair to its portfolio serves as a testament to our solid business model and the talent of our people.”

Aaron Stone, a Senior Partner at Apollo, said, “We are extremely pleased to be acquiring this premier amusement park operator. We look 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.”

Transaction Details

The merger is conditioned upon, among other things, the approval of holders of two-thirds of Cedar Fair’s outstanding units, the receipt of regulatory approvals and other closing conditions. Assuming the satisfaction of these conditions, the transaction is expected to close by the beginning of the second quarter of 2010. The merger agreement does not include a financing condition. Upon completion of the merger, Cedar Fair will become a private company, wholly-owned by an affiliate of Apollo Global Management.

Under the terms of the merger agreement, Cedar Fair may solicit alternative proposals from third parties for 40 days and will consider any such proposals. There can be no assurance that the solicitation of such proposals will result in an alternative transaction. In addition, Cedar Fair may, at any time, subject to the terms of the merger agreement, respond to unsolicited proposals.

Rothschild Inc. and Guggenheim Securities, LLC are the Company’s financial advisors, and Weil, Gotshal & Manges LLP and Squire, Sanders & Dempsey are its legal advisors. Wachtell, Lipton, Rosen & Katz and O’Melveny & Myers LLP acted as legal advisors and B of A Merrill Lynch, J.P. Morgan, Barclays Capital Inc., and UBS Investment Bank acted as financial advisors to Apollo Global Management in connection with the transaction.

About Cedar Fair

Cedar Fair is a publicly traded partnership headquartered in Sandusky, Ohio, and one of the largest regional amusement-resort operators in the world. The Company owns and operates 11 amusement parks, six outdoor water parks, one indoor water park and five hotels. Amusement parks in the Company’s northern region include two in Ohio: Cedar Point, consistently voted “Best Amusement Park in the World” in Amusement Today polls and Kings Island; as well as Canada’s Wonderland, near Toronto; Dorney Park, PA; Valleyfair, MN; and Michigan’s Adventure, MI. In the southern region are Kings Dominion, VA; Carowinds, NC; and Worlds of Fun, MO. Western parks in California include: Knott’s Berry Farm; California’s Great America; and Gilroy Gardens, which is managed under contract.

About Apollo Global Management

Apollo is a leading global alternative asset manager with offices in New York, Los Angeles, London, Singapore, Frankfort and Mumbai. Apollo had assets under management of over $51 billion as of September 30, 2009, in private equity, credit-oriented capital markets and real estate invested across a core group of nine industries where Apollo has considerable knowledge and resources.

Read the entire press release from Cedar Fair.

Wednesday, December 16, 2009 11:57 PM

Well, I'm stunned.

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Thursday, December 17, 2009 12:36 AM

While it's totally a big deal, this probably won't affect the upcoming operating season...

...right?

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Thursday, December 17, 2009 12:49 AM

WOW...

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Thursday, December 17, 2009 12:54 AM

This is the absolute best thing that can happen to Cedar Fair. Apollo owns 40% of Harrah's Gaming, and if they hadn't gone private with Apollo, Harrah's would have bankrupt months ago.

Cedar Fair has been seeking for over a year new financing to relieve its heavy debt load from Paramount, pure and simple. Now, it comes off the balance sheet, everyone still gets paid, and there are no interruptions in capital projects.

CF runs a lean ship now, with not much fat. Yes, Kinzel and the Board own huge blocks of stock, but the 'per share' price to be paid will be a premium. Some will disagree, but that 'unit' price isn't going up anytime soon.

Apollo wants to own, not do day to day operations.

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Thursday, December 17, 2009 1:10 AM

In what universe is that a premium? Over what it was trading at yesterday, sure, but most people didn't buy units yesterday.

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Thursday, December 17, 2009 1:13 AM

How does the debt come off the balance sheet? Apollo is assuming the debt which will still need to be paid and refinanced going forward.

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Thursday, December 17, 2009 1:41 AM

The debt is off of their operating budgets, and is now assumed by Apollo. They will raise funding to pay. Either way the math works, CF passes it on to Apollo.

As for the stock, you win some, and lose some when you buy. I think everyone lost this one compared to 5 years ago. I wonder what the stock would have been worth then, and what the buy-out would have been also without the pre-Paramount debt. Mind-boggling.

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Thursday, December 17, 2009 1:56 AM

Guess I am still not understanding what you are saying. Right now CF owes the debt with cash flow from operations of the parks expected to pay it. If the deal closes, whatever entity Apollo forms to buy the assets will owe the debt and own the parks whose cash flow will be expected to pay the debt. Whose operating budget will the debt then be off? And what funding are you expecting to be raised to pay the debt?

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Thursday, December 17, 2009 2:12 AM

Mark this date. I totally agree with Jeff's post above.

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Thursday, December 17, 2009 2:25 AM

Agent Johnson said:
This is the absolute best thing that can happen to Cedar Fair. Apollo owns 40% of Harrah's Gaming, and if they hadn't gone private with Apollo, Harrah's would have bankrupt months ago.

Are you serious? Harrah's would have been in better financial shape had they NOT gone private. They took money out of the organization, and then loaded it up with debt.

Yes, gaming companies are suffering, but Harrah's debt went up $16 BILLION when they took them private. I suspect that there's a small amount of interest expense that got added to their income statement, that added no value to the organization whatsoever.

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Thursday, December 17, 2009 6:21 AM

Call me shocked! I just hope we can say "see ya later!" to Kinzel!

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Thursday, December 17, 2009 8:39 AM

I paid $21 a unit--and will probably not vote in favor of this. What makes them think two-thirds of the unit holders will approve this? Does the Board of Directors hold enough units to force this through?

Last edited by Jeffrey Seifert, Thursday, December 17, 2009 8:45 AM
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Thursday, December 17, 2009 9:02 AM

The institutional investors are likely to play along, and if they do the individual investors are immaterial. Effectively, the Board is telling them that the company is failing, and this is the best deal they'll get. Especially now that the distribution has been suspended, and most of the institutional investors viewed it as an income producer, not a growth engine, they'll jump to get out, because it no longer meets the original investment objective. They may well prefer to reposition that capital in something that better fits that objective. The premium over the post-suspension unit value might be enough to convince them.

I could be wrong about this---I'm not an analyst. But, that's the way this reads to me.

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Thursday, December 17, 2009 9:25 AM

Jeffrey Seifert said:
I paid $21 a unit--and will probably not vote in favor of this. What makes them think two-thirds of the unit holders will approve this? Does the Board of Directors hold enough units to force this through?

I made a similar point on PointBuzz. Are there enough shareholders out there who want the opportunity to recoup the investment loss and kill the deal? What percentage of stock do the major shareholders own who could ultimately decide if it happens?

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Thursday, December 17, 2009 10:00 AM

$11.50 per unit sucks for the people who have seen it drop from $30, but at this point, the alternative might be a slow, painful death and probably bankruptcy and units worth zero just like Six Flags. I'd say the buyout is preferable to that. I mean if you really think CF's stock is going to head back to $30 anytime soon with the debt load they have, I think you might have a screw loose honestly.

Canning the board and some upper management and attempting to dig out internally would be an appealing option to a lot of small unitholders, but the debt covenants tightening are going to put the screws to the company unless they can get some debt paid off fast. I think Brian Noble makes a good point too about the institutional investors. The reason they owned CF in the first place (the dividend income) doesn't really exist any more. At this point it is more of a "deep value" risky kind of investment. They might as well cut their losses and reallocate their investments to something that matches their original objective.

CF is is not a terrible company. I hope this proves to be good for the parks and a lot of the people working there that have suffered under the current regime. There are a lot of "ifs" involved though - if they all even keep there jobs being the biggest one. A lot of times with buyouts, people end up having to interview again for their own jobs and such. CF paid more than they should have for Paramount and have been trying to dig out by cutting this and that and laying off people and that just isn't a big enough shovel to get them out from under the pile of debt. This probably gives the parks a better chance to survive and thrive than continuing with the status quo.

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Thursday, December 17, 2009 10:26 AM

Another clue---the stock has been hovering between $11.20 and $11.35 in open trading today. If it stays sub-$11.50, it's tacit agreement by the market that this deal is going through. If it climbs above the offer price, it is a signal that the market thinks the company is better off without Apollo.

Last edited by Brian Noble, Thursday, December 17, 2009 10:27 AM
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Thursday, December 17, 2009 11:20 AM

No, the price today means that there is an interest in the company from the buyout buzz. Its doesn't mean the stock will hit $12, it doesn't mean the stock will hit $6 either.

Its not going nowhere near $30, if thats what you are hoping for. There are not enough individual unit-holders to even get a substantial percentage to vote against this.

As for the Harrah's comment from Credit-Ho, Harrah's saw Ceasar's Entertainment as a merger to dominate many gaming markets in the US, including Atlantic City. What Harrah's didn't plan was that Ceasar's was Hilton Hotel's sister company, and operated with very little cap-ex debt. Hilton paid for their projects with exisiting cash flow.

Harrah's got stuck holding the bag with acquistion debt, and current projects in the pipeline, which proved to be too much when Atlantic City started to slide, and convention business in Vegas also declined.

Therefore, yes, they have debt beyond their wildest dreams, but they have the equity fund behind them to function. At least now everyone gets paid this way, and there are no bankruptcies where folks are getting pennies on the dollar.

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Thursday, December 17, 2009 11:47 AM

Brian Noble said:
The institutional investors are likely to play along, and if they do the individual investors are immaterial.

I wouldn't be too sure about that. This seems to indicate that institutions only account for 22.54%. That's not very high at all. I'm not that convinced that this is a done deal.

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Thursday, December 17, 2009 11:56 AM

I am shocked by this. As a unit holder I would stand to lose about 60% of my investment in what I considered a "long" investment, and an "income" one at that. They are taking away that possibility with what is essentially handing the keys to the company to a loan shark for a quick payout.

This is shocking because little to none of the "severity" of the debt schedule was communicated to the market. Even their last 10Q painted the company in "sound financial condition" with "adequate cash flow for current liabilities." They managed to bring down the interest rate on the long term debt this year. And, they only have 16.5 million coming due in the next 12 months. So, what exactly is going on?

I just don't understand the need to do this right now given what the market knows. This is a company with positive EBITDA, positive net income, more than enough liquidity to service its debt load, substantial real estate and tangible assets, and until the next quarter, one that has paid out a healthy dividend to its holders.

This just screams to me that somebody or somebody(s) needed out know and don't want to wait it out like the rest of unit holders should, and I call complete BS on this one.

I certainly am not going to vote for this action, but I'm sure as has been mentioned that the institutional investors probably want out or at least some change. I wouldn't be surprised to see another company or two, maybe Blackstone, try to make a play and offer something better to us investors. At least I hope so.

/m

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