Q Funding sues Cedar Fair again, this time for not calling special meeting

Posted Sunday, March 20, 2011 4:36 PM | Contributed by Jeff

Cedar Fair LP's largest shareholder has sued the amusement park chain for not calling a special meeting of shareholders to vote on whether board candidates can be nominated from outside the company. It is at least the second time in the last six months that Texas hedge funds Q Investment has gone to a Delaware state court to force the Sandusky amusement park firm to call a shareholders meeting.

Read more from The Toledo Blade.

Sunday, March 20, 2011 11:42 PM

I was in Toledo this past weekend visiting some friends, and my buddy's Grandmother showed me they (Q-Funding) paid for a full-page ad in The Blade today. The letter shown was extreme, but I heard they've published worse in recent weeks.

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Monday, March 21, 2011 12:03 AM

Somebody didn't to their homework when it came to amusement industry stocks. They are not a rapid growth industry, and very susceptable to weather and economic conditions.This has always been the case with CF. The unit price has nearly doubled since Q started buying it ( it was a little over $11/unit then , closed just under $19 on Friday). If they aren't satisfied with the rate of growth they should just sell it and go invest it somewhere else instead of wasting everyones time and the corporations funds in this battle of attorny's. It's not as if they wouldn't make any money.

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Monday, March 21, 2011 12:16 AM

I'm not sure why they haven't bailed yet either. Although you have to wonder what they'd really be able to sell for, because it's not a high volume stock at all. If you flood the market with however many units they have, how much will really be sold at $19?

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Monday, March 21, 2011 10:27 AM

I may be wrong.. but isn't a company concerned about paying off debt a
good thing? A large company with low debt makes stock prices higher and you benefit in the long run. I know this may be a bit simplistic but..
it is basically correct.. right?

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Monday, March 21, 2011 3:42 PM

Of course, in theory you need to be making money and generating cash for the stock price to rise, neither of which were true for Cedar Fair in 2010. Apparently the market thinks that will change in the future though. Also, they owe more than they own (if you take out goodwill which is a phantom asset), so I am not sure how the company has much value at all today, other than future expectations.

Cedar fair might be "concerned with paying off debt" but they only paid off 6% of their 1.7 billion in debt last year.

Last edited by TerraCoaster, Monday, March 21, 2011 3:43 PM
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Tuesday, March 22, 2011 10:58 AM

Companies with negative net income can still generate positive cash flow (depends on what is causing the net loss and its impact on cash). Tough to do it on a long term basis but companies often times do it (depending on the non-cash charges involved) on a short term basis. Cedar Fair has had a net loss for the year 2 times in the past 5-6 if I remember right. Its pretty much impossible to lose cash on a long term basis and survive.

Book value of assets (less goodwill) is about the same as liabilities for CF as of 12/31/10. But the assets are likely worth more than book value (which is what accounting rules require you to put on your balance sheet with few exceptions). Ability to generate cash flow is a big driver of value. Looking at the market cap of public companies is a very good way of determining value of a given company (beyond looking at a balance sheet).

How much of their debt would you like them to repay in any given year? And what things would you like them not to spend money on to allow them to make higher debt payments? To me, there is a balance between paying down debt and using cash to run/grow the buisness. There are no bright line tests which provide a black and white answer as to how much to pay down debt (other than the required amortization under your credit documents). Interest rates are very low right now. But they won't stay that way forever (and we better all hope they don't otherwise there will have been no real recovery). Reducing debt is always good in terms of reducing interest payments but especially good when interest rates rise. Q and CF are in something of a pissing match over that balance right now.

Seems to me that right now there is a personality/ego battle going on between Q and CF. Most good business folks don't allow emotion to get in the way of good business decisions and don't makes things personal. These folks have done both from what I have seen. In my experience, big egos make it more likely that will happen.

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