Harvie named chairman of Cedar Fair, focus on higher distribution fails to pass

Posted Monday, January 24, 2011 5:17 PM | Contributed by Jeff

[Ed. note: The following is an excerpt of a press release. -J]

Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and active entertainment, today announced the appointment of C. Thomas (“Tom”) Harvie as non-executive, independent chairman of the Board of Directors, effective immediately.

Harvie succeeds Dick Kinzel as the Company’s chairman. Kinzel voluntarily relinquished his chairman position in response to unitholders’ support of the proposal regarding the separation of the chairman and chief executive roles. Kinzel will remain as president and chief executive officer of Cedar Fair through the end of his contract on January 3, 2012. The proposal passed with approximately 54 percent of the vote at the Special Meeting of Unitholders, held on January 11, 2011, to consider two amendments to the partnership agreement as proposed by Q Funding III, L.P. and Q4 Funding, L.P. (“Q Investments”). Given the complexity of voting tabulation caused by the two distinct sets of proxy materials used in such special meetings, the results required a verification and reconciliation process by an independent inspector of elections.

Harvie, who has served as an independent director of Cedar Fair since 2008, chairs the corporate governance committee and the CEO succession planning committee. Most recently, Harvie served as senior vice president, general counsel and secretary for The Goodyear Tire & Rubber Company.

Harvie’s appointment is in line with the Board’s newly adopted policy, which requires the separation of the chairman and chief executive officer roles and states that the chairman of the Board will be independent of the Company.

Harvie commented, “We believe today’s actions will help ensure a smooth and seamless leadership transition for Cedar Fair as it enters a new era of growth and sustained value creation for its unitholders. The Board recognizes the valuable leadership that Dick Kinzel has provided the Company during his years of service as Chairman and CEO, and appreciates his continued commitment to the Company. I look forward to serving in this strategic leadership and governance role as we complete the CEO succession planning transition process and continue to build on the Company’s strong 2010 performance.” The appointment of the non-executive, independent chairman will be reviewed by the Board on a periodic basis

As announced on December 6, 2010, the Board has retained Korn/Ferry International, one of the world’s leading executive recruiting firms, to assist in its ongoing CEO succession planning process, which is expected to be completed by the end of the second quarter of this year.

The Company also announced that Proposal #2, which called for the amendment to the partnership agreement to require the payment of cash distributions to unitholders as a higher priority than reducing leverage and strengthening the Company’s balance sheet for the future, failed to receive the requisite number of votes required for approval by unitholders. Three of the four leading proxy advisory firms recommended that unitholders vote against the proposal

“The Board recognizes that unitholders have a vested and continuing interest in the payment of a sustainable and growing distribution,” said Kinzel. “The Company is – and always has been – deeply committed to the payment of a distribution to our unitholders. Consistent with that commitment, the Board has agreed to review the distribution strategy during the 2011 first quarter in combination with our 2010 full-year results. As part of that process, we will consider all options available under our current capital structure with respect to the payment of future distributions. As evidenced by the past 24 years the payment of a distribution is among the Board’s highest priorities.”

The Company today filed an 8K with the Securities and Exchange Commission which sets forth the detail of the final voting results, as certified by the independent inspector of elections. The filing can be accessed via the SEC website at www.sec.gov.

Read the entire press release from Cedar Fair.

Tuesday, January 25, 2011 2:52 PM

I don't fall in the "Q is evil" camp. And I don't know what the weighted average is for the units that they purchased. So trying to determine what their ROI would be at any given unit price is nothing more than a guess.

If CF increased its distributions, CF unit price would increase in the very near term. Amount of unit price increase would depend on the size increase in the distribution. But with higher distributions, the return on investment would increase even absent other increases in unit price. That would give Q an increase in ROI in the short run. Would it be sufficient for them to want to exit the invesment and lock in their returns? Don't know without knowing their weighted average purchase price. But private equity firms aren't looking for 50% returns. They would love to get them but in reality, they typically don't with most individual investments.

Argument against increasing the distributions is that its better for the company's long term financial success to pay down debt. A perfectly efficient market could price the long term harm that increasing the distributions could have on the long term health of the company. But we don't have perfectly efficient markets. In addition, there are uncertainties that exist going forward which make it difficult to price the potential future impact of a distribution over debt reduction approach. 2010 was a good year for CF. What if 2011 isn't? Or 2012? Companies with less debt/more cash are typically better able to deal with down times. So CF with reduced debt would be better able to deal with a down time (should one happen in the next couple of years) than it would one that used the cash instead to pay distributions. That long term harm may never happen. But the short term bump up in unit price is pretty much a given.

Tuesday, January 25, 2011 8:39 PM

Cedar Fair preaches the Gospel of debt repayment over distributions. Unitholders are painted as selfish and reckless for demanding an adequate return, in cash, from units.

Money is just to tight in the economy Mr. Kinzel assured us. The Board has gone along. Debt repayment must be the overarching principal driving all asset allocation models.

Or so they say.

Cedar Fair just gave 500,000 dollars to a high school football program. Not made an extra payment on debt. Not distributed surplus cash to starved investors.

No. They purchased a new football field.

Did Dick Kinzel make a gift from his salary--which exceed $4 million dollars last year? No. He gave away unitholders dividends.

CF actions make clear, money is available for many activities, above and beyond debt repayment. Except for increasing dividends.

Tuesday, January 25, 2011 9:38 PM

$500,000 would be about a penny per unit distribution. It would cost more money to send the checks out.

Tuesday, January 25, 2011 9:43 PM
Jeff's avatar

Dude, you need a hobby. I Google your name and you apparently leave a trail of reverse-propaganda all over the Internet. Every company donates stuff, especially in the communities they occupy, because that's what being a good corporate citizen is. It's part of the cost of doing business. I think you're kind of talking out of your ass.

Excessive debt load in a business that is dependent on weather and a solid economy is not good business. As much as I find the current leadership to be in over its head, reducing the ridiculous debt they incurred by over-paying for Paramount Parks (and pissing away money on Geauga Lake) should be a priority.

Jeff - Editor - CoasterBuzz.com - My Blog - Silly Nonsense

Tuesday, January 25, 2011 10:22 PM
LostKause's avatar

I wont begrudge Cedar Fair for donating money to their community and being a good neighbor. More big companies need to do that. It would make the world a much better place.

Cedar Fair also hosts Coasting for Kids, helping children with life-threatening illnesses take a vacation from the hospitals and worry. The prizes that they give as incentive for the participants make a small dent in the budget, I'm sure. Plus, some of this donating stuff might be a tax write-off, so no harm done. Go Cedar Fair!

Wednesday, January 26, 2011 10:44 AM
ApolloAndy's avatar

I "love" these order of magnitude off comparisons. Really? $500,000 is a huge deal either way?

Hobbes: "What's the point of attaching a number to everything you do?"
Calvin: "If your numbers go up, it means you're having more fun."


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