Cedar Fair encourages unit holders to vote against Q Investment proposals

Posted Monday, December 13, 2010 1:04 PM | Contributed by Jeff

[Ed. note: The following is an excerpt from the press release issued by Cedar Fair. -J]

The Board of Directors of Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and active entertainment, today sent a letter to all unitholders stating its reasons for opposing the proposals submitted by Q Funding III, L.P. and Q4 Funding, L.P. (“Q Investments”), one of the Company’s largest unitholders, to be considered at a Special Meeting of Unitholders on January 11, 2011.

The Board believes the proposed amendments to the Company’s Partnership Agreement would not be in the best interests of unitholders because they would severely limit the options available to the Board in pursuit of its strategy to maximize long-term value. In addition, they would greatly disrupt the Company’s deliberate and ongoing succession planning process that is well under way and is expected to be completed by the end of the second quarter of 2011.

Read the entire press release from Cedar Fair.

Monday, December 13, 2010 1:20 PM

The 2 directors appointed by Q Funding are opposed to the amendments? Interesting.

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Monday, December 13, 2010 1:26 PM

I've give them that paying out a higher distribution is probably not the best idea. But the silly posturing to keep Dick in charge, even for a year, annoys me.

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Monday, December 13, 2010 1:27 PM

Assuming I'm reading everything right - Q want's short term profit over longevity - yet the board recommended selling the entire company last year...

Isn't this a bad case of the pot calling the kettle black?

I'd still like a third option - but don't expect one soon.

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Monday, December 13, 2010 2:00 PM

There may be some valid points in their argument...but I have to say it is hard to take the Board very seriously. This group who allowed the Chief Executive/Chairman of the Board to appoint his ill-equipped son to the position of General Manager of one of their parks doesn't really scream "independent" to me.

It screams "hip pocket".

Be that as it may, I do think the Board should have the option of looking within for Dick's successor. (I'm not convinced his successor is in the company, but I don't think that those in the company should be penalized from being considered along with outside candidates.)

But, it is blatantly obvious what happened here. The Board saw the writing on the wall with Dick and quickly put together a succession plan so that they could say they had a succession plan. You don't have to be a fly on the wall to figure that out. Sometimes their aloofness surprises even me.

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Monday, December 13, 2010 2:34 PM

The more I think about it, the more evident it is to me that Q is not in this for the long-term growth and success of CF. They are in it for a quick return on their investment. You can't blame them for that, but their posturing that they have the long-term interests of CF in mind is somewhat laughable given what they want to do with the dividend. It's a difficult argument to make that Q's interests and intentions coincide with the majority of other unitholders' intersts and intentions. Increasing the dividend to $1 given the debt load CF has is irresponsible and short-sighted.

In terms of removing Kinzel from Chairman...I think it's important to remember that John Scott and Eric Affeldet are both AGAINST that. And they are about as independent of directors as they come. I'm not a Kinzel supporter by any means, but there's not much benefit in removing him from just the Chairman's post when he'll be leaving both posts in less than a year (from the time of the meeting). In fact, I think CF makes a decent argument that, if anything, this could adversely impact their search for new leadership. Not only does it restrict them in their planning process, it also doesn't shine a favorable light on the company with prospective candidates. It's not good for potential candidates when the largest shareholder in the company who isn't interested in long-term growth and success is issuing regular, public demands and ultimatiums about almost every aspect of the company. (Ex. Q's latest press release stating CF better pick the CEO they want or they are going to make that CEO's life hell and work aggressively to get him removed). I guess the next CEO had better choose to pay a $1 dividend no matter the state of CF's finances or he's going to fall out of Q's graces quickly.

Last edited by Buckeyes1, Monday, December 13, 2010 2:36 PM
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Monday, December 13, 2010 6:36 PM

I don't think it restricts their CEO search at all. I don't think the board chair should be a current or past executive. I think in either case they're too "inside" to act as the leader of the governing body. They should absolutely not be the same person at the same time.

I won't vote for the distribution push, as that doesn't make a lot of sense to me, but if the language is right in the CEO vs. chair issue, yeah, I say do it unless it means some huge payout to Dick early. Although I'd be surprised if getting booted from the board early had some kind of obscene payout.

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Monday, December 13, 2010 11:04 PM

Q filed a a SEC filing today as well..

http://www.sec.gov/Archives/edgar/data/811532/000089742310000189/cedarfairad.htm

This about to be a bumpy ride!

Last edited by Carowinds2005, Monday, December 13, 2010 11:06 PM
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Tuesday, December 14, 2010 3:02 AM

"I'm not really a finance person," biting you in the ass, for the win!

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Tuesday, December 14, 2010 7:59 AM

That has to be one of the biggest corporate blunders of all time. I don't know if it will sink him...but it sure was ill advised.

And, therein lies the problem. He doesn't have advisors that can be honest with him.

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Tuesday, December 14, 2010 9:48 AM

You must not be familiar with many corporate blunders if you think this is one of the biggest one's of all time. It's goofy but it's not exactly Enron.

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Tuesday, December 14, 2010 9:55 AM

I don't think I was really looking to compare "blunder" with "multiple felonies".

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Tuesday, December 14, 2010 10:01 AM

blunder: to make a mistake through stupidity, ignorance, or carelessness

There was nothing about Enron that qualifies as a "blunder". And I'd say that "blunder", in fact, perfectly characterizes Kinzel's "math is hard" statement.

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Tuesday, December 14, 2010 10:23 AM

Wow. Sucks to be them right now.

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Tuesday, December 14, 2010 10:36 AM

wahoo skipper said:
And, therein lies the problem. He doesn't have advisors that can be honest with him.

I'll take it a step further and I'll wager that the one advisor who felt comfortable challenging Dick is the one who lost his job last summer. I have no insider knowledge to that end, but it certainly adds up.

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Tuesday, December 14, 2010 10:42 AM

^But a bunch of yes-men will always tell me what I want to hear.... ;)

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Wednesday, December 15, 2010 1:17 AM

Buckeyes1 said:
The more I think about it, the more evident it is to me that Q is not in this for the long-term growth and success of CF. They are in it for a quick return on their investment. You can't blame them for that, but their posturing that they have the long-term interests of CF in mind is somewhat laughable given what they want to do with the dividend. It's a difficult argument to make that Q's interests and intentions coincide with the majority of other unitholders' intersts and intentions. Increasing the dividend to $1 given the debt load CF has is irresponsible and short-sighted.

There's nothing about a dividend that says quick return on an investment. 25 cents per share every 3 months is making a quick buck? I own a few hundred shares, and I think Q's interests line up pretty well with mine. What am we supposed to do? Watch the unit price bounce around between 12 and 15 dollars for the next 20 years until their debt is totally paid? I didn't invest in the company so they could pay their bills while I get nothing in return. I do that for charities, not a for-profit business.

If you check out the chart for FUN over the past couple of years, you can see what's happening with the unit price. It tanked majorly when they announced the suspension of the dividend back in November of last year-- from $9.52 to $6.99 in one day. This year, it's fluctuated basically between 12 and 15 dollars. But every time the price has gone above $15 or $15,50, it would drop right back because people would sell off their shares. They'd buy shares and as soon as the price would go up 25-50 cents or so in a short period of time, they'd sell them. That, my friend, is looking to make a quick buck; not holding shares because a dividend is being paid. There's really nothing to indicate in the near future that the unit price is going to break out and start going up steadily short of reinstating the distribution. The stock is not suddenly going to go up 10 or 20 dollars because they paid off another couple of million in debt.

This company that Cedar Fair mentions in their press release-- the competitor that didn't weather the downturn (like CF did) and had to declare bankruptcy-- would that be the same company that is now trading at nearly 4 times the value of Cedar Fair and also just recently announced they would be paying a dividend?

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Wednesday, December 15, 2010 2:12 AM

The .25 was for the year... not per quarter.

I do have to agree that comparing to Six Flags is completely disingenuous. The situation for Six Flags is completely different. To get to their current financial condition, they had to hose the previous investors. If Cedar Fair could do the same thing with bankruptcy, I'm sure that today they could probably offer the same dividend.

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Wednesday, December 15, 2010 11:40 AM

Any CF unitholder who wants a better deal than what the pre-bankruptcy Six Flags shareholders got can get it today. Donate your CF shares to your favorite charity and you will get a tax deduction (which is more than what the SF shareholders got). That will allow you to get the same benefit of future CF distributions and increased CF unit value as the pre-bankruptcy SF shareholders get from post-bankruptcy SF share values and dividends. Its amazing what wiping out half of your debt does to the value of your company and your ability to pay dividends. Maybe Q Funding should be pushing the CF board to file a bankruptcy. ;)

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Wednesday, December 15, 2010 3:00 PM

Jeff said:
The .25 was for the year... not per quarter.

I do have to agree that comparing to Six Flags is completely disingenuous. The situation for Six Flags is completely different. To get to their current financial condition, they had to hose the previous investors. If Cedar Fair could do the same thing with bankruptcy, I'm sure that today they could probably offer the same dividend.

Yes, the CF board paid a one-time $0.25 dividend in November. I was referring to Q's push for a $1.00 dividend. That comes to 25 cents a quarter, which buckeyes1 thinks amounts to Q looking for a quick return on their investment.

If paying down the debt is the only thing CF should worry about, perhaps they could drop capital investments for the next 5 or 10 years and devote all that money they've been spending on rollie coasters to reducing their debt.

As a CF unitholder, I don't care about pre-bankruptcy Six Flags. They never paid a dividend and they still had to declare bankrputcy. But CF purchased Paramount's parks in 2005 or so, yet managed to continue and even increase the dividend to $1.92 per share per year, with the same amount of revenues they announced for this year and nearly the same amount of debt. So what's so different now?

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