Cedar Fair quietly seeks buyout

Posted Monday, July 9, 2007 9:20 AM | Contributed by tambo

Cedar Fair Entertainment Co., the nation's third-largest theme-park operator, has quietly reached out to private equity firms to gauge their interest in a buyout on the condition that the company's management team remains in place, The Post has learned. According to two sources close to the situation, Cedar Fair has tapped Bear Stearns to conduct a small, highly targeted auction for the company.

Read more from The New York Post.

Monday, July 9, 2007 9:26 AM
Even as a unit holder with a modest stake, I'm not sure how I feel about this. Cedar Fair has thrived on the basis that it can create a stable, long-term sustainable business. I think the result of that is a good product. This reeks of a build-and-flip, which benefits only the large shareholders for big short-term gains. It can throw a company into chaos.
Monday, July 9, 2007 10:01 AM
I can't say I understand this at all - or at the very least it doesn't sound like good news. Why would a private equity firm buy them out and leave the current management in place (a reported stipulation of the deal) - typically, that's not how these things work.

I think I smell a rat. Perhaps the current management sees a rocky road ahead with the current business trends vs. ongoing financial situation?

Pure speculation, of course, but I've got a bad feeling about this....

Monday, July 9, 2007 10:02 AM
Who exactly initiates something like this?
Monday, July 9, 2007 10:13 AM
Boy, talk about coming out of left field...although private-equity seems to be the IT thing right now.

I see some plusses and minuses if they do move forward on this.

First, I see a better opportunity for Geauga Lake to get turned around before shareholders start demanding a more direct course of action with the park. If Kinzel et al don't have to focus on quarterly results and can look at a multi-year effort to turn around not only that park but to provide needed synergy throughout the company then it could be a good long term solution.

Second, Kinzel et al would be free to make larger captial investments without scrutiny. It is risky but we all know there could be more investment throughout the chain but I think the performance measures are holding them back from doing more of that. Of course, Kinzel et al stand to profit big time from this type of move.

And, there are far fewer checks and balances under private equity. While Kinzel et al may reap huge rewards, I'm not sure that would translate to better rewards for mid-level management on down.

Finally, this all could be a bid to make the company stronger and then turn around and go public. And, of course, ego is likely involved.

This is going to be interesting to watch.

Even for the largest potential players, $3.3 billion is a pretty heft chunk of change.

I posted the above over at Pointbuzz...but to follow up on Jeff's point more:

I agree, only the top dogs would see real benefits from this...and by benefits I'm talking a windfall. I think just opening the discussion is going to have some immediate repercussions. As I understand it there is already a bit of a morale issue amongst the full time staff members of the original Cedar Fair parks. This certainly isn't going to help.

If I were a full time staff member (which I was) I would view this a little bit like; "hey...we've worked our a$$e$ off for you over the past decade(s) and this is how you are going to repay us? By selling out?"

Now, I do want to give Kinzel the benefit of the doubt. I have a hard time believing he wouldn't do what is best for the long term health of the company. He and his family members (along with others in the high management ranks) are doing fine financially. There is no great need here for a big payoff.

Eight...in most cases the PE firms approach companies they want to buyout. In this situation it sounds like Cedar Fair is initiating the conversation.

This is pretty strange...no doubt about it.*** This post was edited by wahoo skipper 7/9/2007 10:13:52 AM ***

Monday, July 9, 2007 10:31 AM
I was going to mention the ego angle but declined. :)

PE firms are all about the futon approach for companies, the flip-and-f%&* if you will. In the post-bubble world they do so trying to build up and sell everything to Google. It's the uncertainty of who may ultimately end up with the company that scares me the most. Six Flags and the Paramount Parks are no longer owned by huge media companies, which I think is better for them in the long run, but look at how Six Flags did with the wrong leadership team in place.

Monday, July 9, 2007 10:41 AM
I dont understand is this good or bad.
Monday, July 9, 2007 11:00 AM
To paraphrase Gordon Gekko:

"Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Cedar Fair, but that other malfunctioning corporation called the USA. Thank you very much."

Again, it is not in my nature to be an alarmist....but.....

Monday, July 9, 2007 11:37 AM
Can anyone comment on what incentives Cedar Fair would have to seek out being purchased?

I know there are pros and cons for management, investors, the parks, the buyer, etc, but what prompted all this?

Anyone understand this stuff enough to explain?



Monday, July 9, 2007 11:51 AM
Well, this is going to be a bunch of speculation on my part...but...

Kinzel has pretty much had the Board of Directors of Cedar Fair in his pocket for a long time now. With the Paramount purchase I am sure there is more than a passing interest on their part (along with the shareholders in general) to be more on top of how this transition proceeds. Add to that the very public struggles at Geauga Lake and you have a recipe for meddling which I'm not sure Kinzel has had to deal with much of in the past.

By going to a PE it, in theory, makes the managers less accountable, at least publicly. The caveat that the management team will remain in tact with the firm that buys them out is a bit out of the ordinary and may be a deal breaker right there.

The upside to the PE, if Kinzel et al can sell it, is that with freedom he can improve the profitability of the company and, should they go public again, the PE investors will see a nice profit.

There will be some winners and losers, to be sure, but it will be interesting to see how the midlevel staff on down views all of this. They are the one's least likely to benefit.

Monday, July 9, 2007 1:15 PM
IMO, there are two possible reasons why CF would be shopping for a buyout at this time:

1) Looking to cash in for a large (personal) short term gain
2) CF thinks they need help/support from an outside party to keep the current business sustainable - obviously NOT referring to outside business knowledge on how to run amusement parks, most probably financial support. And this makes sense to approach private equity firms, because they sure as hell aren't getting any more bank loans, and don't want to be a takeover/firesale candidate from another public company (very unlikely anyway)

Of course, if #2 were true, I can't figure out why they wouldn't just generate and sell more company stock to raise cash like they did last July or reduce the dividend (unless nixed by large unitholders).

Either one....well, ya know.

Monday, July 9, 2007 2:00 PM
Wow, this is somewhat surprising news.

Nice catch, Tambo.

Monday, July 9, 2007 2:33 PM
The first thing that comes to my mind is that it doesn't make any sense for a private equity company to buy Cedar Fair but leave current management in place. I cannot see one of the private equity bohemouths like Apollo Management, Texas Pacific Group, Carlyle Group or Blackstone Group allowing current management stay in place. Doesn't that violate the primary reason private equity deals are done? A company has big cash flow but poor management keeps the company from maximizing its potential?

I do think looking for a buyout makes sense in a world where Cedar Fair doesn't think they can handle the debt load they took on. With the big problems in the sub-prime market lately (not their fault, but still significant), Cedar Fair could be looking at the future and realizing that the debt could be the ultimate downfall of the company.

Ultimately, I think this demonstrates the confidence the board of directors has in the future of the company, IMHO.
*** This post was edited by Paul Blackstone 7/9/2007 2:44:12 PM ***

Monday, July 9, 2007 4:15 PM
Motley Fool commentary...


After thinking about it all day, I just don't get it - this whole thing just doesn't make sense to me. Unless something fundamental has changed since last summer (which I can't fathom), it just seems to be too early for CF to float this out there.
*** This post was edited by Doug Rowe 7/9/2007 4:17:04 PM ***

Monday, July 9, 2007 4:17 PM
I am not economist, or economy major, or even one who understands economics all that much... but reading this, the one thing that pops into my mind is the Paramount Park buy and the term "Over extended".

Someone tell me if I'm wrong... or right.

Monday, July 9, 2007 5:16 PM
SLFAKE, I think you are absolutely right. Although the word I would use to describe the situation is "over-leveraged" rather than "over-extended".

Cedar Fair took on a huge amount of debt last summer when it acquired the Paramount Parks. As the recent release about attendance shows, this is not a growth business anymore and paying off that debt is going to be difficult. Like I said before, the sub-prime problem on Wall Street is going to be a major problem for Cedar Fair. The tide has turned and investors are a lot less likely to hold "junk" right now than they were a year ago. This is a problem because when Cedar Fair goes to refinance the existing debt in five years they might not have anyone to dump it on and they might get stuck with the loan!

I think if Cedar Fair doesn't get taken private there are only a few options they'll have to correct this debt problem: 1) a second share offering to raise cash, which will dilute the market and decrease the value of FUN shares; 2) reduce the dividend pay-out to help save cash; 3) a combination of the two. Selling the company for $35 or more per share seems like a much better option at this point for both management and investors.
*** This post was edited by Paul Blackstone 7/9/2007 5:17:55 PM ***

Monday, July 9, 2007 5:47 PM
It's all aobut the dollar folks!

CF has created atmospheres for people to have fun. If it's sold, The new guys will suck the fun right out of it.

Chuck, who says Carl Linder damn near ruined KI when he owned it.

Monday, July 9, 2007 6:13 PM
Does anyone know the complete history behind Cedar Fair? For instance, when did they purchase the other parks in their portfolio? I think Valleyfair was the first, but when did they purchase all the other parks?

Also, why did they start buying so many parks? Wasn't Cedar Point profitable enough for them? It seems like they've spread themselves too thin. So, to me at least, the logical question is why did they decide buying up tons of parks would be a good idea? Didn't they learn from what happened to Six Flags?

Monday, July 9, 2007 6:18 PM
Public companies are expected to grow. That said, the acquisitions came slowly (save for the Paramount deal). It was nothing like Six Flags at all.

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