Cedar Fair and Six Flags merger to complete July 1, mostly Cedar Fair executives to lead new company

GoBucks89:

Merger talks were ongoing for 5-6 years before being announced (with some degree of certainty the merger would happen when Matt left).

Assume you meant to say 5-6 months?

In SIX's proxy filing for the shareholder vote on the merger, they indicated the first discussion of any merger was on July 21, 2023 when Zimmerman reached out to Selim to ask for a meeting regarding a potential transaction. Then on August 1, Zimmerman and Withrow met with Selim and Gary Mick in Dallas. It wasn't until August 8 the SIX board was updated on the potential transaction / August 1 meeting. Ouimet's resignation took effect September 1. Deal announced on November 2.

It's kind of a fascinating read that lays out in specific detail (over 9 pages worth) of how the deal came together between July 1 - November 2, 2023.

Matt referenced not wanting to deal with cost efficiencies of a merger. Said he wasn't good at that discipline. Responsibility for that falls mostly on the CEO. Matt stepped down as CEO in 2017. They created a new title for him which was executive chair of the board but he replaced the chair of the board. Wouldn't expect chair to be too involved in extracting cost efficiencies from the merger. But not sure what Matt's day-to-day involvement was.

Ultimately, I think Matt realized the ceiling in terms of improving guest experience was significantly lower with Cedar Fair than it was with Disney. Merger or no.

I think by getting out of the way he meant as exec chair. This hasn't been in the works for years, to Chicago07's point. I also don't think that he saw a ceiling in improving the experience. There's no reason to believe that. He only said that it was difficult to do that and find cost efficiency, probably because it's not possible.

Certain combinations are inevitable. Long before they formally happen, its known by those in the industry. Its a question of when not if (though until it happens there is no 100% certainty). Cedar Fair/Six Flags combo is one that has been discussed on this board at one time or another for years. Ouimet may have viewed the combination as inevitable.

Putting that aside, its odd to me he would bring up cost efficiencies after a merger as the reason for him stepping down as chair of the board given the responsibilities of a board chair versus CEO in terms of seeking out and implementing cost efficiencies.

Of course there is a ceiling in terms of improving guest experiences. Every organization has one. Disney. Apple. Amazon. Cedar Fair. That shouldn't be questioned. Question is whether the Cedar Fair (and Six Flags) ceiling is materially lower than that of Disney. I think it is. Nothing that Ouimet has said directly (I never said or suggested that he did). Just lining up a large number of dots. Both of what I know of the industry in specifics and in terms of business and economics in general. And in terms of Ouimet's career and including his time at Cedar Fair (in the context of what was happening at CF during that time).

Do organizations talk in terms of ceilings? Of course not. Doesn't change reality that they exist though. And ignoring that often leads to failure.

Cedar Fair has always had room to improve the experience. And until the last year, they seemed willing to do it, often with inexpensive things like cheap beach activities or parades. If leadership thinks there's a ceiling, they lack vision.

Cutting costs usually helps the bottom line temporarily. It's an obvious lever to pull, but terrible for the long run. Well, let me qualify that, you can cut costs involved in attracting "expensive" revenue, things that you lose money on or have low margin, but after that, the product you want to succeed will suffer from cost cutting. That top line doesn't grow, and the market hates that.

I think Matt asks a reasonable question, whether or not cost cutting, er, "cost efficiency," is mutually exclusive of improving the product. I don't know that it is, but hospitality has a lot of squishy variables, like the "vacation DNA" he talks about.

Forgive me, but I am not following the point you are trying to make GoBucks. Is it about the timing of the merger, Ouimet's role or lack of role in it. I am not understanding.

Regardless, a couple points -

1) Ouimet stepped down as Executive Chairman of the company effective 12/31/2019.

2) A Cedar Fair / Six Flags combo was certainly not a "not if but when" type of thing. It was a shock to the industry - particularly given the misalignment in culture and strategy, and the difference in quality of guest experience.

3) Ouimet made it pretty clear he resigned from the Board as a result of the SIX/FUN merger. He was re-elected to the Board in April 2023. The merger talks started happening in July 2023 and he resigned from the Board 9/1/23. Merger announced November 2023.

4) His comments about his leadership style and strength being more towards elevating the guest experience vs cost cutting/synergies wasn't about him directly being responsible for that at the new SIX as a member of the Board, but more so around the lack of value he perceived he would bring as a Board member/thought partner to executive leadership team as their priorities moving forward weren't aligned with Ouimet's strength, style and vision.

Cedar Fair announced that Ouimet would step down as Chief Executive Officer of Cedar Fair in October 2017. It became effective January 1, 2018. He became the Executive Chairman of the Board of Directors of Cedar Fair on January 1, 2018 as well. It was a newly created title though Eric Effeldt (the Chairman of the Board of CF prior to January 1, 2018) transitioned to just being a director as of January 1, 2018. Effectively, Matt became the chairman of the board in January 2018.

https://www.prnewswire.com/...30453.html

That was the beginning of Matt's transition away from Cedar Fair. As you note, he stepped down as board chair (which isn't a fulltime gig) 2 years later and was only a director until 2023 when he walked away totally. And thanks. I didn't realize he had transitioned away from his chairman title. His statement about cost efficiencies makes even less sense with him simply acting as a director.

So if the merger wasn't on anyone's radar until July 2023, I don't think it makes sense to say Matt left Cedar Fair because of the merger when his transition away had begun years earlier.

"But Matt said that was the reason he left." Statements by public companies are carefully worded. Typically reviewed/edited by outside counsel and marketing/PR people. You often have to tilt your head a little and squint your eyes (connecting dots/reading between the lines) to get to what really happened. There is some spin going on.

There has been a long history of consolidation in regional amusement parks. There have been rumors of a Six Flags and Cedar Fair combination for a number of years. Indeed, many people who were against the merger when it was announced last fall were hoping it was just another rumor that wouldn't pan out. In terms of culture and fit, its a little like closing time at a bar: your options are limited and you may need to take what you can get. With a push to consolidate, there were not a lot of other options out there.

I stand by what I said about Matt and he reasons for leaving. Have a discussed it with him? No. Have never met him or talked with him. But it makes sense to me. And part of the reason is I have seen on this board over the years people with a ton of experience in the industry struggling to understand the differences between finances of destination parks and regional, seasonal parks. And others in different industries with fantastic experience at the industrial powerhouse/darling who thought they could bring the same to smaller players in the same industry but failed.

GoBucks89:

So if the merger wasn't on anyone's radar until July 2023, I don't think it makes sense to say Matt left Cedar Fair because of the merger when his transition away had begun years earlier.

You're making this "transition" some kind of construct that it isn't. I think you're totally reading into it, contrary to what the company and Ouimet have said. And knowing the guy even to the small extent that I do, I don't believe he's one to blow smoke. My conversations with him have been mostly about doing what you do for the right reasons. If he says he bailed because he didn't feel like the right fit at the right time, I believe that. Certainly, he wouldn't have bailed so soon after being reappointed to the board if the merger was inevitable at the time of his reappointment.

Chicago07:

2) A Cedar Fair / Six Flags combo was certainly not a "not if but when" type of thing. It was a shock to the industry

The people in the industry who were shocked by this were fooling themselves.

A look at the history of consolidation in the industry, and the number of marriage proposals being sent to Cedar Fair in the last 5 years should have been plenty of fair warning. I agree with GoBucks, a merger of this scale was inevitable. It just so happens that the way this played out (with CF management retaining operations) was frankly the best of the possible scenarios. However, I still think there is going to be rough waters ahead as there will be board conflicts when the cost savings that Ouimet said he wasn't good at become hard to obtain. Spoiler alert: Zimmerman was never good at (net) cost savings either- he'd save money in one way but outspend that with new expense.

I'm not sure I agree. Outside of Cedar Fair buying the former Paramount Parks, the industry has had more hand-changing than consolidation. Look at Darien Lake. It's been sold, what five times, and managed by at least four different companies? Indiana Beach? What else has there been that was large scale beyond maybe the Kennywood/Parques Reuinidos transaction?

There will be some cost savings, mostly in reduction of high level C suite type stuff if that happens. But day to day operations will not change unless they offload parks. A park costs x dollars to run, and there is no escaping that. I currently believe that this was nothing more than an extraction of cash from the business into personal hands, and that the cost savings will materialize from the sale of some of the parks. We shall see if it pans out differently, hopefully it does.

Legacy Six Flags already fired most of the corporate office. I don't know that there's a ton of efficiency to be gained there. I think the opportunity has been vastly overstated.

TheMillenniumRider:

A park costs x dollars to run, and there is no escaping that.

But they also generate revenue of $y, right? If disposing of a park saves costs to the chain as a whole, doesn't that mean that park's revenues aren't covering its direct costs? If so, aren't you selling that park for pieces/parts? Who would buy it to run it if it doesn't cover its own costs to run? If the park covers its own direct costs, doesn't disposing of it hurt the chain as a whole because that park's net revenues were helping cover chain overhead costs?

I am not sure if any of the Six Flags or Cedar Fair parks operates individually at a loss. They don't break down revenues/costs by park. Though internally they clearly have that info. But assuming there are parks that do, wouldn't they have shut them down/sold them already? Doing that post merger would be admitting good news we are saving costs, bad news we have been incurring those costs for years.

As you know, the park doesn't merely have to cover its own costs, it has to generate income higher than the cost of the capital that would be returned to the company if it were sold. Given both higher interest rates than several years ago, and a significantly different debt situation for the combined companies, it may well make sense to say, "These parks made sense for Cedar Fair (or Six Flags) 5 years ago, but they no longer do."

(I'm not sure if that's exactly what MillenniumForce was thinking about, but you sort of glossed over it as a consideration.)

Additionally, it may make sense to say, "We really have two different companies here, with vastly different ROIs. We have a bunch of big regional parks near major markets, and another bunch of small parks near smaller markets" and split the company in a different way.

In any case, it's not obvious to me where the economies of scale are in the amusement park business. These aren't big-box stores where they'll suddenly command more pricing power. They still need local HR and compliance and security and the various other departments. If anything there are dis-economies of scale from additional layers of management that those local HR, compliance, etc. will now roll up to. Yes, they can have one ticketing platform and one web platform and maybe down the road they'll jettison some IP, but those aren't really big ticket items, and the cost of integration will probably more than eat up the savings.

And, it's not obvious to me that the combined company gains anything in the way of marketing and brand equity. This group has discussed ad nauseum that very few people, if any, would suddenly start attending a park because it had Six Flags (or Knott's) slapped above the name. On the contrary, people build up strong attachments to their local parks, attachments that cross generations in a lot of cases. They may like new stuff, but they don't like seeing the familiar icons get trashed. There's a lot of risk in standardizing the product.

So if you don't get cost savings, and you don't get brand building, I'm not quite sure where the mystical "synergies" are coming from.

The only thing that made this merger "inevitable" was 10-figure payouts to directors and investment bankers.

I mean, they can source uniforms from the same place. Or food from Sysco if it doesn't already come from there. 🙂 After that... SYNERGY!

As you know, the park doesn't merely have to cover its own costs, it has to generate income higher than the cost of the capital that would be returned to the company if it were sold.

Would be included in whether any given park's revenues were covering its direct costs. Not in a pure income statement sense but in a ROI sense.

Given both higher interest rates than several years ago, and a significantly different debt situation for the combined companies

Interest rates are higher today than several years ago but not really on a historical basis. Looks like prime rate was about 25 basis points higher when Cedar Fair bought Paramount (with no expectation at the time of interest rate cuts but today, after more than a decade of near zero rates, the world became addicted and is begging for rate cuts). How is the debt situation significantly different for the combined companies?

Additionally, it may make sense to say, "We really have two different companies here, with vastly different ROIs. We have a bunch of big regional parks near major markets, and another bunch of small parks near smaller markets" and split the company in a different way.

But the statement was that parks would be sold to save costs. Splitting the various parks based on size of markets wouldn't be for cost savings, would it?

Jeff:

Legacy Six Flags already fired most of the corporate office. I don't know that there's a ton of efficiency to be gained there. I think the opportunity has been vastly overstated.

100%

There is very little to no legacy SIX corporate staff left. Selim fired the vast majority over the past 2 years. The synergies won't be coming from headcount reductions at the corporate level. I fear it's going to be more of what Tim Fisher has been doing for the last couple years - cutting costs at the park level which directly negatively impact the guest experience.

Cedar Point is selling 2025 Gold Passes for $99 plus $85 for the all-park add-on, which will include all legacy Six Flags parks starting in January.

I think even the single-park pass should be more. A whole summer for a hundred bucks? I can't see a good show for that amount, and that only lasts a few hours.