Q Funding sends letter to Cedar Fair unit holders urging no vote on Apollo deal

Posted Friday, February 19, 2010 12:57 PM | Contributed by Jeff

Excerpt from the letter:

"Since the transaction was originally announced, we believe the bank funding markets have continued to improve, and we also believe the company may be able to negotiate with its current bank group to allow some cash distributions to unitholders. In our view, as evidence the bank funding markets are improving, we need to look no further than Apollo Global Management’s success in securing approximately $1.95 billion in debt to help finance their potential transaction, a figure that is higher than the $1.63 billion of debt that Cedar Fair had outstanding on its balance sheet as of December 31, 2009."

Read the entire letter on Business Wire.

Friday, February 19, 2010 3:23 PM
Carrie M.'s avatar

Can you really make that kind of conclusion about the bank funding market, though? Apollo may have been able to secure the financing via its own strong financial standing and its relationships in the banking industry. That doesn't mean that CF will have the same success in their own refinancing attempt.

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

Friday, February 19, 2010 5:20 PM

Depends on who you talk to about the debt markets. In certain parts of it, things are better. In others, they really aren't. And they certainly are not what they were 2 years ago. So the answer is it depends.

One thing about the debt commitments that Apollo has secured is that they never said who the lenders were and for how much (at least not that I saw). Apollo has a mezzanine debt subsidiary that may be providing a portion of the financing. So it isn't clear to me they Apollo has been able to secure third party financing commitments in excess of what CF has today. But maybe info has been made public which indicates that is the case.

Another issue with respect to refinancing the CF debt is interest rates. In the past 2 years, interest rate margins have increased by about 2-4 percentage points. But the base rates (prime rate and LIBOR) to which those rates apply are at pretty much historic lows -- at least over the past 50 years or so (in large part because governments around the world have been keeping interest rates low to try to jump start the economy). But at the same time, those same governments have been printing money and borrowing money at record paces. The result of that will be increased interest rates at some point. Interest rate margins are unlikely to come down in the near term. So even if the credit markets loosen up, CF will likely have refinance issues because rising base interest rates will make it tougher for its assets to service the refinanced debt.

Saturday, February 20, 2010 12:31 PM

Got my proxy yesterday, and cast my "NO" votes online. First time I ever voted online.

One thing worth mentioning. If any unitholders receive ballots from Proxy Services and they want to vote "no," they must vote either by mail, phone, or online. If you don't, the proxy service will vote your shares, and they will go along with the recommendation of the board, unless specifically instructed otherwise. So the idea that votes not returned are an automatic "no" is not true in this case.

Saturday, February 20, 2010 1:55 PM

Well if that's the case, there's a slim chance it may breathe some life back into this deal.

And then one day you find ten years have got behind you
No one told you when to run, you missed the starting gun

Sunday, February 21, 2010 1:45 AM

RatherGoodBear said:
Got my proxy yesterday, and cast my "NO" votes online. First time I ever voted online.

One thing worth mentioning. If any unitholders receive ballots from Proxy Services and they want to vote "no," they must vote either by mail, phone, or online. If you don't, the proxy service will vote your shares, and they will go along with the recommendation of the board, unless specifically instructed otherwise. So the idea that votes not returned are an automatic "no" is not true in this case.

Wait...I know we discussed the situation about a non-vote proxy being counted as a "no" vote, so have they released another paper/statement that now has non-votes being counted as "yes" votes? Because the last I knew, all non-votes were equal to a "no."

Original BlueStreak64

Sunday, February 21, 2010 12:41 PM

The discussion was that they needed 2/3 vote in favor for the sale to go through. It was assumed that ballots not returned would be automatically counted as "No" votes; however, if your shares are held through a broker (for example, mine are through Morgan Stanley Smith Barney, or whatever they're called this week), you will receive a voting packet from ProxyVote or a similar group. The following statement is part of the voting instructions.

"We have been requested to forward to you the displayed proxy material (ballot) - relative to securities held by us in your account but not registered in your name. Such securities can be voted only by us as the holder of record. We shall be pleased to vote your securities in accordance with your wishes, if you will execute the ballot and submit it as per the instruction on this Internet site. It is understood that if you submit the ballot without otherwise marking it the securities will be voted as recommended by the Board of Directors on all matters to be considered at the meeting." (bold print is my emphasis.)

In order for your securities to be represented at the meeting, it will be necessary for us to have your specific voting instructions. Please complete and submit the voting instruction form (ballot)."

Because the broker is holding the shares in my name, I only get to vote through them, not directly. To me, this reads that unless you specify "No" on the ballot, the proxy will tally your votes in agreement with the board's recommendation. This may not be applicable to people who hold their shares directly. If I were against this sale, I wouldn't piss around arguing over semantics. Nor would I assume that by simply ignoring the ballot that you are casting a vote against the sale. It takes all of a minute and a half to do online.

Sunday, February 21, 2010 1:51 PM
Jason Hammond's avatar

I think the no vote is if nothing is returned.

854 Coasters, 34 States, 7 Countries
http://www.rollercoasterfreak.com My YouTube

Monday, February 22, 2010 8:35 AM

It is a bit confusing. If you don't send it back it is considered a "no" vote. If you send it back but don't checkmark anything it is considered a "yes" vote. If your units are held by a broker, bank or other nominee and you don't instruct same how to vote it will be a "no" vote.

If it doesn't appear the vote is going in the direction the company wants it (ie...not enough proxies come in, thereby defeating the recommendation) the company can adjourn or postpone the meeting and try and solicit additional proxies. (So, don't make any specific travel plans to get to the State Theatre.)

A few things I find fascinating. Steven Tishman is on the Board of Directors for Cedar Fair, and is also the Managing Director of Rothschild...one of the two firms (along with Guggenheim Securities) who are "recommending" the merger. Funny how that works.

Then, of course, yo uhave the disclosure of Bart Kinzel and Tim Boals not only working in prominent positions in the company but also having certain benefits that may come with this merger. We could do an entire thread on that nonsense.

I will be sending in my vote via online today. My best guess: Cedar Fair needs to prepare to write a check to Apollo in the amount of $19,556,700.

Monday, February 22, 2010 10:00 AM

Note that I have not reviewed the final proxy materials...

But the Company cannot know for certain who owns all of the outstanding shares. In the preliminary proxy statement they indicated that ballots not returned would be counted as NO votes.

The complicating factor is that if you own shares but they are controlled by someone else, then your broker may act on your behalf, in which case your failure to vote on your shares is taken as instructions for your broker to cast your vote with the Board recommendation. So while you might have ignored a proxy card, your broker did not, and is prepared to cast votes in accordance with your instructions (or your lack of instructions). Which means that just because you didn't send in a vote doesn't necessarily mean that you didn't vote!

--Dave Althoff, Jr.

    /X\        _      *** Respect rides. They do not respect you. ***
/XXX\ /X\ /X\_ _ /X\__ _ _ _____

Monday, February 22, 2010 11:50 AM
Jeff's avatar

The rational investor would obviously approach this as, "Is $11.50 the best I'll ever get, and what's the alternative?" The worst case scenario is that the deal isn't approved and the company goes into some eventual bankruptcy and I get nothing. What I keep coming back to though is that this entire scenario is predicated on a market that does not improve, which I don't see. It also assumes the same lame leadership, which I also don't see happening if the deal fails.

The emotional investor, for which I suspect there are many, is just going to be generally pissed off and won't let Dick be rewarded for failure, let alone let him fail for another two years, potential loss of investment be damned.

I leaned into the latter category, maybe a little too far. My 309.483 votes voted no. My hope is that the three big investors become activists and get someone with a clue in there.

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

Monday, February 22, 2010 3:14 PM

Well, I have 1/3 the shares you do and I didn't pay for any of them. A one time "bonus" and reinvestment over the years got me to this point. So, in fairness, I don't really "lose" if the units become meaningless.

I've thought about selling my units in the past to pay off debt and so forth but we always kept them as the emotional attachment to the place my wife and worked at, met, and got married. I suppose I am "gambling" that my no vote (along with many others) will force a leadership change. Disney survived after Eisner. Cedar Fair can survive after Kinzel...in my opinion.

Monday, February 22, 2010 8:26 PM

Another class action suit filed on behalf of unitholders. This one relating to info in proxy.


Monday, February 22, 2010 10:53 PM

The market may improve but its not a sure thing at this point (at least not in the near term by 2012 when CF needs to refinance). Latest projections I have seen still have unemployment rates just under 10% through the end of 2010. So no significant job growth is forecasted until 2011. Historically at least some of the CF regions have lagged behind the rest of the country in terms of recovery. So it may be longer until those areas see significant job growth.

Financial markets are improving somewhat but not in all segments at this point. And many folks see a commercial real estate bust in the near future that will likely cause more turmoil for financial institutions. To refinance, CF's leverage will need to be reduced either through increased EBITDA or decreased debt or a combination of the two. With limited job growth, I am not sure how easy it will be for EBITDA to grow and that will make generating sufficient cash flow to reduce debt difficult.

Changing management has its issues as well. Any new folks would need to really hit the ground running in order to win over the confidence of the existing lender group or a new one taking out the existing debt facilities. Are there folks out there who could do that in the near term in a "clean house" type scenario that many seem to support? And if existing management is a horrible as many folks seem to believe and if there are so many things that could be done by either existing management or new management to turn things around quickly, why is Apollo keeping existing management around?

All of those things may happen. But there are certainly a lot of risks involved. Other potential buyers were not interested at a price that many in the media and on this board believe significantly undervalues CF. A couple investors have increased their stakes at a price that was about $1 to $1.50 over the Apollo offer price but those investors haven't given any indications of their intentions other than to vote against the Apollo sale at the current offer price. And since those purchases pushed the unit price up, the unit price has trended lower and is now below $11.50. Will be interesting to see what happens with the Apollo sale between now and the meeting date and then going forward if the sale is rejected.

Monday, February 22, 2010 11:18 PM
Jeff's avatar

I think letting the local people at each park (other than Carowinds) do their jobs would be a fantastic start to any executive makeover. There are a great many people who firmly believe that applying WWCPD to parks in other markets has hurt, not helped, their financial performance.

Beyond that largely anecdotal conjuring, I think that there are enough smart people left in the company that if you empower them make good decisions around a strategy that goes beyond "cut x% in costs," I think you'll get results.

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

Tuesday, February 23, 2010 1:40 PM
ApolloAndy's avatar

wahoo skipper said:
Well, I have 1/3 the shares you do and I didn't pay for any of them. A one time "bonus" and reinvestment over the years got me to this point. So, in fairness, I don't really "lose" if the units become meaningless.

I hate to be a stickler, but if the units go to 0, you lose $11.50/share, regardless of how you got them. Just like if I find $20 on the street and then get mugged, I still lost $20 in the mugging.

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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