Four lawsuits filed against Cedar Fair over sale deal

Posted Wednesday, December 23, 2009 12:24 PM | Contributed by Jeff

Four lawsuits filed in Erie County Common Pleas Court on behalf of five Cedar Fair unitholders claim the deal is unfair. They allege the offer price of $11.50 per limited partnership unit undervalues the company's worth, depriving its unitholders of the profits they seek.

Read more from The Sandusky Register.

Wednesday, December 23, 2009 12:29 PM

...and so it begins!


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-Mark

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Wednesday, December 23, 2009 12:38 PM
ahank's avatar

It makes me wonder if Kinzel saw this coming or not when he made this deal.


-Aaron
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Wednesday, December 23, 2009 1:44 PM

No surprises here, it's just SOP in these situations.

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Wednesday, December 23, 2009 2:23 PM
Carrie M.'s avatar

Isn't it premature to sue even before the vote? I mean if 2/3 of the unit holders end up voting that this is a good deal, what leg would these folks have to stand on?

Then again, this is interesting....


D. Thomas Rengel, attorney for Denslow and Sprau, said part of this breach includes the fact that Cedar Fair may be required to pay Apollo up to $19.5 million if the sale sours.

Is that normal for these kinds of things? How could that kind of deal be made before the unit holders vote?


"If passion drives you, let reason hold the reins." --- Benjamin Franklin

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Wednesday, December 23, 2009 2:27 PM

I am was the judge I would toss it or at least delay the case until the vote is taken. "Fair price" is in the eyes of the beholder. If more than 1/3 of the unitholders thing the price is unfair, the sale won't go through. If not, the sale goes through. If complaining unitholders can find some violation of the partnership's formation/operating documents in terms of how the sale was conducted or some problem with the vote (such as collusion, etc. and not just that any given unitholder or unitholders with less than 1/3 of the units doesn't like how the vote came out), I would be happy to hear those issues.

Break up fees are pretty common. And unitholders do not typically get to vote on whether to agree to a break up fee. The vote is required to merge or sell all of the assets of the holding company. There is a limited number of things that unitholders need to approve. Board/officers get to approve the rest.

Last edited by GoBucks89, Wednesday, December 23, 2009 2:29 PM
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Wednesday, December 23, 2009 2:34 PM
Carrie M.'s avatar

I guess I wasn't thinking the unit holders should get to vote on a break-up fee, but rather if the sale isn't possible until enough of the unit holders agree, how can such a deal be made?

That's like telling the unit holders if you do not agree to this, CF is going another 19.5 million into debt. Maybe that's not a lot of money in the bigger picture, but still. That doesn't sound right to me.


"If passion drives you, let reason hold the reins." --- Benjamin Franklin

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Wednesday, December 23, 2009 3:09 PM

In reality, you only get one chance to go to the unitholders for approval. You can't go to them asking for tentative approval of a sale which would presumably ask for approval of a break up fee, negotiate with Apollo for the terms of the deal and then go back again to the unitholders for final approval. The requisite unitholders need to approve the final deal. There is a lot of work that went into the terms of that final deal. Apollo worked with lenders to get commitments to finance the deal. The break up fee is meant to cover the time and expense of that process in the event the deal does not go forward even though Apollo has done everything it needed to do to get the deal done.

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Wednesday, December 23, 2009 3:24 PM
Carrie M.'s avatar

I see what you are saying. I'm still not suggesting the unit holders needed to be consulted about the break up fees.

But agreeing to pay a fee in case the deal doesn't go through is a form of commitment. I don't see how Cedar Fair is entitled to make such a commitment before the unit holders have been consulted about the sale.

What you say makes total sense from the perspective of the potential buyer. It just doesn't for the seller, or more importantly, the seller's unit holders.


"If passion drives you, let reason hold the reins." --- Benjamin Franklin

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Wednesday, December 23, 2009 4:04 PM

There is a hierarchy of approvals that need to be obtained for any given action to be taken. Certain actions can be taken by officers of the company (without board or unitholder approval). Other actions require board approval (without unitholder approval). Still other actions require unitholder approval (typically based on a recommendation from the board). Presumably the organizational documents for CF allow the board to approve an agreement to pay a break up fee without unitholder approval.

To be able to present the final sale document to the unitholders for approval (which the board has determined is in the best interests of the unitholders), the board needed to agree to the break up fee. Agreeing to the break up fee is the price so to speak that the board needed to incur to be able to do what the board has concluded is in the best interests of the unitholders.

What is the board's alternative? Don't proceed with the sale process because they don't think the unitholders will like the break up fee?

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Wednesday, December 23, 2009 4:09 PM
Jeff's avatar

The existence of an offer may imply though that it's a "get out while you can" situation, and unit holders may simply rubber stamp it because of that. The justification for the price so far has been that it was a premium over some arbitrary day's closing price. I mean, I could pick a day in January at $13.something. They picked a day at a particularly recent low price, so look at an average over the last year and this isn't a premium over anything.

My thought of a fair price would be something along the lines of, what's the total value of the company's assets, subtract the long-term debt, then divide that number by the number of outstanding units.

But again, it's still all based on the idea that they'll be incapable of refinancing in 2012, and that's still not an iron clad case to me.


Jeff - Webmaster/Editor - CoasterBuzz.com - My Blog - Twitter - Video

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Wednesday, December 23, 2009 4:59 PM
Carrie M.'s avatar

I don't think the unit holders need to vote on the break-up fee. I'm not convinced the break-up fee should exist at all. It's just a way for the potential buyer to limit the risk involved in what it a risky business. And it insures they make money no matter what happens. I think it's great that it works for them, but it doesn't work so well for the other side. That's really the only point I was making.


"If passion drives you, let reason hold the reins." --- Benjamin Franklin

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Wednesday, December 23, 2009 5:32 PM

Break up fees are standard procedure in large deals, and most of the time don't need/require shareholder/unitholder approval.

As for Jeff's thought of a fair price calculation, that is the way you would normally do it. However, in the case of CF, I'm not sure that you get a pretty answer doing it that way.

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Wednesday, December 23, 2009 5:58 PM

Not sure that the dates they used in referencing premiums were arbitrary. They used the closing price from the day before the deal was announced and the average of the closing price for the last 30 days. Those prices reflect the economic reality of the company at this point. Any date prior to the date they released earnings and announced the elimination of the dividend (early November I think) reflects a different company (particularly the elimination of the dividend). People can argue that those dates are not a true reflection of the value of the company on a going forward basis but it seems to me they should have something more than just "because the price was higher at another date" as a basis for that.

Total value of assets less debt is one way of determining value. But how do you determine the value of CF's assets? In terms of the value of publicly traded companies, that value is typically viewed as the market price on the given day. You can also look at anticipated cash flows the assets will produce as a way of determining value though there is a lot of uncertainty with that approach for the assets involved. There is uncertainty with any determination of value (other than using a publicly traded unit price though you can still argue that price is depressed for one reason or another). And it will be up to the unitholders to access the value when they vote.

I suspect that CF explored the debt markets in connection with negotiating the deal with Apollo. And based on the fact that they sold to Apollo, my guess is that the feedback they got from the debt markets was not very good. Doesn't mean that a refinance in 2012 was impossible. But apparently the board determined that its not in the best interests of the unitholders to take the chance. If the board had rejected the Apollo offer and said they were going to work diligently to refinance the debt but were unable to do so and were forced to file a bankruptcy petition, I have no doubt that we would see unitholders complaining that CF should have taken Apollo's offer.

As for the statement about break up fees being good for the buyer and bad for the seller, that is true of pretty much any provision in any agreement that benefits one party but not the other. Its all part of the deal/negotiations. Each party typically wants to include provisions that benefit that party and does not want to include provisions that benefit the other party. And the final agreement is the result of the give and take of the negotiation process and the relative bargaining position of the parties. My guess is that Apollo proposed a deal which included a break up fee, CF asked to have it removed or reduced, Apollo may have reduced it somewhat and told CF that it was a requirement for Apollo to do the deal and CF concluded it was in the best interests of CF and the unitholders to accept the deal with the break up fee.

And there are a lot of provisions in documents that reduce the risk of one party to the agreement who is involved in a risky business (which is pretty much any business). Negotiating power of the parties goes a long way to determining what those provisions are. But competition does as well. If a given buyer insists on a given provision that other buyers won't, its likely that sellers will go to those other buyers (assuming the provision is one that is material to sellers).

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Wednesday, December 23, 2009 6:01 PM
LostKause's avatar

Dick should pay for the breakup fee out of his own pocket. lol

The stock isn't worth anything anymore anyway, now that the dividend payments are gone. Cedar Fair really pulled a fast one on their shareholders, imo.


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Wednesday, December 23, 2009 7:31 PM

LostKause said:
....now that the dividend payments are gone. Cedar Fair really pulled a fast one on their shareholders, imo.

How can you say that?

the reduction in Distribution, and an eventual elimination of same, was predicted in any number of message board forums, Rick M. suggested as much on Fool.com, and Dog knows there were enough people here on CBuzz telling you it was a risky investment. (me, waving hand, saying "I told you so").

Numerous postings about how the distribution was not sustainable with the current level of debt, etc.

let me guess, you somehow missed all that?

Last edited by CreditWh0re, Wednesday, December 23, 2009 7:50 PM
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Wednesday, December 23, 2009 8:22 PM
Carrie M.'s avatar

GoBucks89 said:


As for the statement about break up fees being good for the buyer and bad for the seller, that is true of pretty much any provision in any agreement that benefits one party but not the other. Its all part of the deal/negotiations. Each party typically wants to include provisions that benefit that party and does not want to include provisions that benefit the other party. And the final agreement is the result of the give and take of the negotiation process and the relative bargaining position of the parties. My guess is that Apollo proposed a deal which included a break up fee, CF asked to have it removed or reduced, Apollo may have reduced it somewhat and told CF that it was a requirement for Apollo to do the deal and CF concluded it was in the best interests of CF and the unitholders to accept the deal with the break up fee.

And there are a lot of provisions in documents that reduce the risk of one party to the agreement who is involved in a risky business (which is pretty much any business). Negotiating power of the parties goes a long way to determining what those provisions are. But competition does as well. If a given buyer insists on a given provision that other buyers won't, its likely that sellers will go to those other buyers (assuming the provision is one that is material to sellers).

Obviously. That doesn't change my opinion about these terms.


"If passion drives you, let reason hold the reins." --- Benjamin Franklin

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Wednesday, December 23, 2009 10:58 PM
LostKause's avatar

What I was insinuating, Credit Whore, was that now that dividend payments are gone, a lot of people find the shares to be less valuable, and may decided to sell anyways. It seems to me like this was all planned to benefit everyone but the shareholders.


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Wednesday, December 23, 2009 11:16 PM

Ding! Ding!

Hold on, I'm checking with the judges....I'm being told that, yes, they will accept 'corporate malfeasance'. We have a winner!


My author website: mgrantroberts.com

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Thursday, December 24, 2009 9:43 AM

Merry Christmas.

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