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

Wait, this does not sound right to me at all.

If I had to guess, it would probably be in March of 2013 my contractwould be up,” he told the Register in an exclusive interview Thursday.

Now I swear when he extended his contract back in 2007, it was until 2011. Is he saying that if Apollo extends his contract that it will be until 2013 or that he thinks his current contract is up in 2013?

Kinzel wants a contract extension.

...or has already negotiated with Apollo for one.

It sounds to me like that's when he wants his contract to be up, but it may or may not have been approved by Apollo.

If Apollo is willing to keep him in place, then I seriously question what the hell they're thinking. I mean, if it weren't for his failure, they wouldn't have the chance to buy the company.

And I think that his "didn't see the economy coming" nonsense is a total cop out. You could see it crumbling in slow motion and did nothing to mitigate the situation. He's so in over his head.

And yet he does such a good job policing the litter on the paths......

Only so they can hire one less sweep. :)

If Apollo is willing to keep him in place, then I seriously question what the hell they're thinking. I mean, if it weren't for his failure, they wouldn't have the chance to buy the company.

I'm not entirely sure---let me play Devil's Advocate for a minute. Cedar Fair's current management *has* shown that they can run amusement parks and associated hotels profitably---even in a down economy. Not as profitably as in a stronger one, but profitably.

My sense from the financial reports is that they haven't derived much of the cost savings they expected from the Paramount acquisition, but they haven't screwed those parks up from a cash-flow perspective, either. Where they really got into trouble was over-extending the company on the bet that the expected cost savings would be easy. That bet, plus the subsequent inability to hedge the bet adequately, was what cost the company.

With Apollo ownership, you'd imagine that the sorts of decisions current management has failed to do well (forecasting the costs/benefits of an acquisition, manage debt loads) will no longer be at "Cedar Fair's" discretion, while the day-to-day execution will be---and that part, they can do.

Talking about being profitable when you have serious concern about paying your debt obligations is silly though. It's the reason that a lot of investors ignore EBITDA even though it's usually the first thing mentioned in every earnings release.

And actually, you get to the core of one of the big issues, and I'd even argue that it's the biggest case for regime change. When CF did their due diligence over the Paramount Parks, the view was that it had a ton of fat to trim. It was that cost saving that was pitched as justification for taking on the debt for a relatively quick turn around. I had heard it even referred to internally as a "short term mortgage" to finance the acquisition.

But as you point out, the cost savings never panned out to the extent that they thought it would. That's precisely the reason that they're not "as profitable" as they should be.

Sure, but Apollo's financial backing takes the debt window out of the equation---they have the cash to ride it out. That leaves a positive cash-flow situation under current management, which can be spun back out after the debt is retired and consumer sentiment (along with the broader market) has recovered, for a very handsome profit.

At least, that's one way to play it. Think of Apollo as a well-financed holding company, nothing more.

In any event, I'm pretty sure Kinzel isn't just wishing when he's talking about an exit date---he's one of the people who has been negotiating with Apollo.

Yeah, I understand what you're saying, but that's only good for Apollo, not good for the current owners, the unit holders.

Depends on the alternative.

If Cedar Fair, without the financial backing of Apollo or someone like it, can't cover or defer its debt in the near term, then you'll end up with zip in a bankruptcy. If they can cover or defer, then the future is a lot more promising.

Feedback they are getting from the debt markets must be pretty bad. Otherwise, why would you sell to the first person offering a slight premium over current prices who has lending commitments in hand.

But Brian, if the company was doing the right things in the first place, we wouldn't be in this position... that's what I keep coming back to.

I was reading the actual 8-K filing with the SEC, and I thought it was interesting to note the "Termination Rights". From how I read it, if the agreement was to be terminated by Cedar Fair, Cedar Fair would have to pay a $19 million termination fee to Apollo, or if it was terminated in pursuance of a better offer from another company, a penalty of $11 million. Does this mean that if that if the unit holders do not vote to accept the sale, the termination penalty would kick in?

Here's the actual 8-K:
http://sec.gov/Archives/edgar/data/811532/000090951809000914/mm12-1709_8k.htm

Oh and for further reading, the entire merger agreement is outlined here:

http://sec.gov/Archives/edgar/data/811532/000090951809000914/mm12-1...ke0201.htm

The subsidiary of Apollo that would be acquiring Cedar Fair is Siddur Holdings LTD.

Siddur Fair?

Jeff said:
Yeah, I understand what you're saying, but that's only good for Apollo, not good for the current owners, the unit holders.

The odds of anything "good" happening to the current unit holders at this point are pretty small. The damage is already done. This gives the unit holders something back and the opportunity to make money elsewhere. I think by the time most unit holders would have made back their original investments they would have realized they were better off elsewhere anyway.

Also.."

RGB earlier compared this to a house burning and Kinzel offering scraps. Well, you either take the scraps and move on or you sit back and let the garage burn down, too. The house is already gone.

It almost makes you wonder if the announcement to suspend the distribution was deliberately made right before negotiations with Apollo started, in an attempt to force the share price down to make the company more attractive to Apollo.....

Naaah, they'd never do such a thing...

--Dave Althoff, Jr.

But Brian, if the company was doing the right things in the first place, we wouldn't be in this position

If they were doing *all* the right things, you're correct. But, they are still doing *some* of the right things in areas where Apollo doesn't already have expertise.

Think of it this way. Suppose you divide the sorts of decisions management must make into two piles: strategy and tactics. Strategy is buying or not buying Paramount. Tactics is managing the labor force in a park over a season. CF management has been pretty poor with strategy, but I'd argue pretty strong with tactics. Performance in terms of attendance and per-cap has dropped from 08Q4-09Q3 vs. the 12 months prior. But if you think about the fact that the economic collapse didn't really become "public knowledge" until the very end of 08Q3, the results are pretty decent.

The practical impact of a "holding company" approach is that CF management no longer makes strategic decisions, but continues to make the tactical ones.

Could a different management team make better tactical decisions? I think most of us suspect so. But, the current team isn't doing so poorly that it is obvious that they will be ousted. The fact that Kinzel is publicly talking about an extended term suggests to me that this is already part of the agreement. If he's not given free rein on the tactical front, he'll leave of his own accord. Otherwise, I expect nothing to change in day-to-day operations for good or ill.