Q Investments a mystery in Cedar Fair deal

Posted | Contributed by slithernoggin

A mystery has arisen around the $2.4 billion acquisition of the amusement park operator Cedar Fair by Apollo Management. It began on Jan. 19 when affiliates of the hedge fund firm Q Investments filed a Schedule 13G with the Securities and Exchange Commission reporting a 9.8 percent ownership stake in Cedar Fair. It filed several amendments after that indicating ownership as high as 12%. But what is their play?

Read more from The New York Times.

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I agree that the Apollo deal will likely be voted down. And on a no-money internet bet, I would bet against it. I might even put up a few dollars betting against it. But there are no guarantees. And Q has bet updwards of $80 million on two things: one that the Apollo deal will be rejected and two that there is upside potential beyond the premium over recent market value they paid for the units. And if enough unitholders fail to see value beyond $11.50/unit and the sale to Apollo is approved, the second point is moot no matter how strongly Q feels about the upside potential.

As the article indicates, Q is banking on the Apollo sale being rejected which would put management in a difficult position because management would have failed to win over 2/3rds of the unitholders on a key recommendation for the future of the company. Maybe Q will take that as a chance to change management though as noted before, getting large numbers of small unitholders to band together is like herding cats. But maybe they will be able to do something working with insitutional investors.

And overlaying all of that is the debt. Presumably CF's management has been down that road and the view was not pretty. A strong 2010 would help but with the bleak outlook on jobs, I am not sure how likely that is. Will CF be able to salvage anything of the financing deals that Apollo obtained? Will Apollo remain interested in the company or helping with financing (maybe providing some financing with an equity component)? We shall see.

Jeff's avatar

Herding cats is easy. Just bust open the moist food and they'll all come running. :)

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

I have never known a cat to come running when food is put out. They just eat when they feel like getting around to it. But I am sure there are some who do come running. But even if they do, that is gathering cats not herding them.

LostKause's avatar

You have to feed you cats less, GoBucks. My cats only get fed once a day to keep them in the mice hunting mood. When I pull into the driveway from work, they come running, because they know it's time for their daily meal. No one in our neighborhood has a rodent problem.

I think Jeff's comment could cryptically mean that if Q want to get the small unit holders on the same page, they have to entice them somehow.

All I have to do is pull the ring on *any* peel-top can and the cats come running. "Sorry, $CAT, these oranges are for ME!".

I was joking when I asked in another thread if Mr. Q Investments owes someone a favor. But did I read somewhere that he has talked to other FUN investors? I wonder if the combination of Q Investments and other investors with whom Q has discussed control an aggregated 33% of the outstanding shares. Perhaps all of the aggregated Knott family shares? Perhaps even aggregated shares owned not just by Knott, but also Hunt and Jourden interests? One of the odd things about FUN units is that there are some groups of people who individually don't have many units, but one strategic phone call might be enough to marshall a reasonable block. If I understand one of the articles I read correctly, there are some limits on undisclosed communication with more than a certain number of other unit holders, but a little coordination could allow one or two phone calls to call in a considerable number of votes. I wonder if Q doesn't already have a 34% NO vote arranged, which would eliminate one significant gamble.

Gaming that there is an upside past the failure of the sale, though, is still a bit of a gamble. Personally, I think it is a good bet, but I think it's a good bet in the long term, perhaps longer term than Q might have in mind.

--Dave Althoff, Jr.

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Pete said:
I does seem like this deal is an uphill battle with the unit holders and has a good chance of not passing. The Apollo deal would be good for the parks, if the deal falls through we have a big unknown of where this company is headed. I hope the Apollo deal is approved.

I'm not convinced that the Apollo deal would be good for the parks, Pete. Their interest is to purchase the company for as low a price as possible, make the maximum amount of profit on it, then possibly ultimately turn it into a publicly traded company again.

The way they're going to do that is to maximize revenue and minimize expenses. I don't know if they're interested in $100 million capital improvements annually, or putting in 3-4 new premier rides across the chain each year.

I could see them being more interested in the bigger, more visible parks (CP, KI, KD, KBF, CW) while letting the other ones languish. The CP resorts may be refurbished and updated, but there will surely be a high premium attached to it. (Think Hotel Hershey prices.) The current leadership itself has shown hardly any interest in VF, WOF, and MA. Not much more interest in Dorney, beyond its "regifting" program. And nothing in Santa Clara beyond what it can get from the city and/or the 49ers. But that's just my opinion.

I'm not even buying the idea of Kinzel and crew staying around for any length of time, despite what's been said so far. The past few years have seen stagnant revenue totals, as per caps and attendance take turns rising and falling like a see-saw. Companies like Apollo don't go around saying, "here let us take over your debt, and you just go on doing what you've been doing." They want big profits and they want 'em quickly.

Jeff's avatar

LostKause said:
I think Jeff's comment could cryptically mean that if Q want to get the small unit holders on the same page, they have to entice them somehow.

I wasn't suggesting that at all, only that all of my cats have always enjoyed the wet food. They each get just a little, once a day, with dry food the rest of the time. My former girlfriend Cath (you may remember her from various podcasts) said that it's pretty common behavior. And yeah, not moderating food supplies results in fat ass cats. :)

How about that Q though.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

LostKause's avatar

Lol. Maybe I read to much into it, Jeff.

So the sub-topic in this thread is "Cats"? :)

Having worked with securities attorneys on financing and other transactions that involved securities issues over the years, I know enough about securities laws to be dangerous. There are requirements/restrictions with respect to shareholders owning/acquiring certain thresolds of the total ownership of a public company. Presumably Q is operating within those requirements/restrictions though its often times easy to run afoul of them even if you know what you are doing. So its not clear what discussions Q may be having at this time with other unitholders.

Maybe info circulating at this point about Kinzel and other management folks staying around is a way of getting people more comfortable with the idea that Apollo won't bring great change to the CF parks. On this board I think the lack of change is actually a huge negative but maybe not to other folks. And I am not sure how much crossover there is with unit ownership and park attendance. If not much, the continuity of the parks may not play much of a role in a unitholder's decision to vote for/against. But it also seems to me that there is also some risk that some folks would be more inclined to vote for the deal if they knew Kinzel and current management were getting the ax and/or would be less inclined to vote for the deal because Kinzel and current management will still have jobs with the company. So either having Kinzel/Co. actually stay or just saying that with no intention of actually keeping them around come with risks. My guess that that they will actually stay around (not sure Apollo wants to start out the gate with saying one thing and then doing another though I suspect majority of folks going to any of the parks have no idea who Kinzel or any other management folks are so they would never know if they are gone). Key parts of management typically stay onboard in buyout transactions (at least for some period of time).

Maybe what I was told 20 years ago about cats (and my experience with them since) was BS. I was told that if given access to food 24/7, cats could regulate their food intake and would not get fat. Only way they would lose that ability is if they went any period of time without access to food presumably because instinct would take over and have them eat everything they could with no certainty as to when the next meal would be available. One of the reasons I got a cat rather than a dog out of college was I could leave it alone for a few days and it would be fine. Weight was never an issue; just didn't care about food. No interest in treats or wet food which was fine by me. And thats true of family and friends I know who have cats. Maybe one or two of them (out of about 25) have weight issues but all of them have 24/7 access to food. Maybe that experience is not typical though.

But I do know that the golden retriever I have now and one I had before her is/was a total chow hound. Given access to food 24/7, she would weigh 250 pounds and probably wouldn't be able to move. And all large breed dogs I know are the same. Though from what I see of friends' drop kick dogs, the smaller breeds appear to be able to live with food sitting out 24/7 without eating all of it immediately.

Jason Hammond's avatar

It's funny how conversations go off on tangents. My parents have had cats for at leats the past 30 years. They have the never-ending food dish. It fills on top and as the cat eats from the bottom, more comes out. None of the cats has ever been fat. They were all free to go in and out of the house as they pleased (provided there was someone to open the door for them). Pehaps an idoor only cat might get heavier due to lack of exercise. The only cat we had that started to get a bit heavy was the oldest. She got to about 16 years old. The older she got, the more timid she was about going outside. In her last few years, she was completely indoor. She got heavier , but even at that, I wouldn't have called her fat.

It was always my impression that at least some dogs would eat until you stopped giving them food. Probably ingrained in their genitics for millions of years. Take the food you can get, when you can get it.

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Cats are also more solitary animals, except for lions. Most dogs are pack animals, so every meal is going to be shared. So I guess it's ingrained into a dog to scarf down what it can while it's there, because later on one of the other pack members will have taken it.

Jeff's avatar

Multiples definitely changes the equation. My oldest one got really fat before her younger sister died, because she was always trying to compete. With her three newer siblings, she's usually OK, but sometimes she'll eat compulsively, until she barfs from over-eating.

One of Cath's vet profs said that wet food is truly a psychological response in the way that people respond to dessert. It's not that they need it, but that they enjoy it.

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

kpjb's avatar

LostKause said:
Lol. Maybe I read to much into it, Jeff.

So the sub-topic in this thread is "Cats"? :)

All good scripts need an "A" story and a "B" story to keep it fresh and interesting...


LOL - to me, all the talk about cats in this thread is akin to Kim Bauer being chased by cougars in the woods or something on 24. Except without the bouncing boobs. :(


Jeff's avatar

You know it's 24 season when...

Jeff - Editor - CoasterBuzz.com - My Blog - Phrazy

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