Q Investments makes its case for Cedar Fair issues

Posted Tuesday, December 14, 2010 12:24 PM | Contributed by Jeff

[Ed. note: The following is an excerpt from the press release issued by Q Investments. -J]

Q Investments, which owns approximately 18 percent of Cedar Fair, L.P.'s units, sent a letter to the Company's unitholders today urging them to support two measures it believes will serve as meaningful steps toward reversing the Company's prolonged financial and market underperformance.

The letter calls on Cedar Fair's unitholders to vote FOR two proposals at the Company's upcoming Special Meeting of Unitholders on January 11, 2011. The first proposal would separate the roles of Chairman and CEO, and the second would reinstate what it terms a "meaningful" distribution to unitholders. Q Investments made the following points in support of both proposals:

  • Cedar Fair's stock price has underperformed both the broader market and, recently, Six Flags during Richard Kinzel's seven-year tenure as Chairman and CEO.
  • Mr. Kinzel openly professes to not being "a finance person." Q Funding believes installing an independent Chairman with financial expertise would help Cedar Fair avoid repeating its recent mistakes and benefit unitholders over the long term.
  • It also would infuse some much-needed new thinking into a Board whose members on average have served for more than a decade and who have overseen the Company's underperformance in recent years.
  • In today's environment, this is simply good corporate governance.
  • As stated in the letter, the Company's Unit price falls when distributions are reduced. Q Funding believes the Company can easily afford to pay a $1.00 per Unit distribution to unitholders, leaving it with about $50 million of annual free cash flow to pay down debt in a normalized environment.

Read the entire press release onPR Newswire.

Tuesday, December 14, 2010 2:29 PM

Comparisons to Six Flags are funny. SF filed bankruptcy petitions and converted large amounts of debt to equity and left existing equity with nothing. Is that the model Q Funding wants? And comparing the performance of a company with significantly less leverage (accomplished with a bankruptcy) to one still paying its debts makes sense? Really?

Folks reaction to the "not a finance person" always struck me as petty. I deal with clients every day who tell me that they will be glad when the finance transaction is done. They want to go back to doing what they do: selling widgets/providing services. Thats how I read Kinzel's comment. Its a big reason why large companies have CFOs. CEOs understand the finance side of the business but they don't live it.

And that isn't to say there are not issues of substance with respect to Kinzel. But that comment just doesn't seem to be one of them to me.

During the process with Apollo, wasn't Q Funding repeatedly saying that Cedar Fair should dump the sale process and refinace its debt? Now that CF has refinanced its debt, Q Funding isn't happy with the terms of it blaming the timing for the refinancing. Monday morning quarterback.

Typically you don't see shareholders seeking to advance specifics with respect to corporate/strategic policy such as paying dividends versus paying down debt/capital expenditures. And in this case, the credit agreement contains restrictions on the payment of distributions to shareholders. Not clear whether the lender group would be willing to amend those restrictions to permit a higher distribution. Often times lenders charge fees for that type of amendment. No doubt Q Funding would complain about the amendment fee as well.

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Tuesday, December 14, 2010 3:04 PM
Tekwardo's avatar

Comparisons to Six Flags are funny.

I think in this instance, and in the context they're going for, its relevant. Q Funding wants the company to seperate the CEO and Chairman positions, which were seperate at SFI I believe, and SFI hired an outsider who was a finance guy. Seems like that's what Q Funding wants, and the comparisons are valid in that when SFI did hire an outside finance guy as a CEO, the company bounced back under formidable odds.

Folks reaction to the "not a finance person" always struck me as petty. I deal with clients every day who tell me that they will be glad when the finance transaction is done. They want to go back to doing what they do: selling widgets/providing services. Thats how I read Kinzel's comment. Its a big reason why large companies have CFOs. CEOs understand the finance side of the business but they don't live it.

I can't disagree more. A CEO is defined as the overall manager. It doesn't matter if you have a CFO or even a COO (which may be more Kinzel's calling), the CEO is responsible in the end for answering to the board when there are financial issues (except in this case, which is obviously a problem that Q wants to get rid of).

Again, back to Shapiro. He may not have had former theme park experience, but he had operating and financial experience, and it showed because as a CEO he was a major part of SFI's comeback. CFOs and COOs that answer to a CEO still have to answer to a CEO, who should be well versed in both.

And its obvious that as a CEO he isn't doing the best with finances. As they point out, he isn't even able to take care of his personal finances without a margin call and lawsuits. Is that how you want him running the company you've invested in?

I want a CEO who knows the financial AND operational side. I want a CFO who specialized in finances, and a COO who specialized in operations.

As far as the refinancing, I don't read it as they're necessarily upset that CFEC refinanced, but they're not happy that CF tried to sell Apollo, lost a couple million to that failed deal, and THEN decided to refinance debt, of which they had just then taken on millions more of. I'd be unhappy too.


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Tuesday, December 14, 2010 3:28 PM

I haven't followed the SF saga very closely so I might be completely off base here but how is Shaprio credited with turning SF around when he took them into bankruptcy?


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Tuesday, December 14, 2010 3:34 PM
Tekwardo's avatar

Bankruptcy protection isn't always a bad thing. The company didn't liquidate, and is in much better financial shape after the bankruptcy (which he was responsible for bringing them out of), so I'd say that he's done a very good job.

Besides, he wasn't at fault for the company needing bankruptcy protection. Burke & Co. can be blamed for that.


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Tuesday, December 14, 2010 3:48 PM

GoBucks89 said:
Folks reaction to the "not a finance person" always struck me as petty. I deal with clients every day who tell me that they will be glad when the finance transaction is done. They want to go back to doing what they do: selling widgets/providing services. Thats how I read Kinzel's comment. Its a big reason why large companies have CFOs. CEOs understand the finance side of the business but they don't live it.

The difference here seems to be that most companies don't operate under the rule of someone as ego-driven as Kinzel. That is, most CEOs empower their employees, whereas Kinzel seems to provide his employees with the answer, and instruct them to create a formula that fits.

Plus, as Tek aptly noted, the CEO is the top of the food chain - he must answer for the company's results, good or bad. Suggesting he's not a numbers guy is basically admitting he's not qualified to be CEO.


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Tuesday, December 14, 2010 3:54 PM

The comparisons Q is making to SF isn't how their corporate governance is structured. Its how they have performed recently. I do not recall Q saying that "SF has a separate CEO and chairman" and so should CF. They have said that SF has done better recently in terms of performance and I think its funny they would say that because in large part SF is performing well because they dumped a lot of debt and left their equity holders out in the cold. As an equity holder, I wouldn't make a lot of comparisons to company's who did that as something aspirational.

I agree that CEOs need to understand all aspects of the company. But in my experience, most CEOs tend to be more comfortable with either the operation or finance side of the business. Some companies are more debt intensive than others. CF has a lot of debt but so do many companies. So just having debt doesn't necessarily mean you need a financial whiz as CEO (contrast that to say utilities who are in the debt markets multiple times a year every year). I didn't read Kinzel's statement about not being a finance guy as meaning that he doesn't understand finances. Just that he prefers the operations side (and almost all of the CEOs I have known prefer one side or the other with a majority of them prefering the operation side -- if not elses because its the sexy/glamour side of the business -- no one wants a loan -- they want to do something and need money to be able to do it).

How is it obvious that the CEO isn't doing the best with the finances?

Q says they are unhappy with the timing of the refinance (although they wanted CF to refinance):

"For example, the Company recently issued debt in the midst of market unrest, which put numerous restrictions on the Company, including what currently amounts to a $0.36 per annum cap on distributions to unitholders as compared to a $1.90 distribution when the Company had similar earnings."
And news flash, the financial markets have changed significantly over the past 2-3 years. There are a whole host of things that companies could do under their old credit documents that they cannot do today when they refinance/incur more debt. If that is evidence of bad corporate leadership, there wouldn't be many companies who still had corporate leadership.

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Tuesday, December 14, 2010 4:02 PM

djDaemon said:

GoBucks89 said:
Folks reaction to the "not a finance person" always struck me as petty. I deal with clients every day who tell me that they will be glad when the finance transaction is done. They want to go back to doing what they do: selling widgets/providing services. Thats how I read Kinzel's comment. Its a big reason why large companies have CFOs. CEOs understand the finance side of the business but they don't live it.

The difference here seems to be that most companies don't operate under the rule of someone as ego-driven as Kinzel. That is, most CEOs empower their employees, whereas Kinzel seems to provide his employees with the answer, and instruct them to create a formula that fits.

And I think Kinzel's management style is a valid criticism.

Plus, as Tek aptly noted, the CEO is the top of the food chain - he must answer for the company's results, good or bad. Suggesting he's not a numbers guy is basically admitting he's not qualified to be CEO.

I don't recall him trying to avoid answering for the company's results. And as I noted, I disagree that his statement admits that he isn't qualified to be CEO. Q Funding doesn't appear to think so either or they would be seeking to remove him as CEO presumably (though in reality I think Q Funding is just playing politics and is playing to its target audience). I deal in debt deals every day. They are my widgets. I have a client tell me at least once a week that they will be glad when the deal is done so they can get back to their regular job. Many of them are large companies and some are public. Don't think that means they are not qualified to do their jobs. And again, I think there are lot of grounds to criticize Kinzel. I just think the "not a finance person" one is petty.

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Tuesday, December 14, 2010 4:09 PM
Tekwardo's avatar

The comparisons Q is making to SF isn't how their corporate governance is structured. Its how they have performed recently.

I could definitely be wrong, but the implication is that SF's corporate governance is structured differently than CF's, therefore that may be the reason they're doing better. Granted, that's just my thoughts on the comparisons, I have no data to back that up.

How is it obvious that the CEO isn't doing the best with the finances?

The whole failed Apollo deal. After taking on the Paramount Parks. You don't take on that much debt, then enter into an agreement with a company to possibly buy, if it passes, although we'll still pay you a few million for your troubles. And I think it's obvious that investors aren't happy with what he's doing, and that's all that really matters.

I understand your comments about CEOs being more comfortable with one or the other, and that's fine, I don't doubt it or blame them one bit. But being more comfortable with one over the other is a little different than 'Not being a Finance Guy'. He should have never said that in public, even if he felt that way.

Last edited by Tekwardo, Tuesday, December 14, 2010 4:12 PM

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Tuesday, December 14, 2010 5:04 PM

Six Flags filed a bankruptcy petition. As part of its plan, significant amounts of debt were converted to equity and existing equity was wiped out. Any company will see its financial results improve if you wipe out signficant amounts of debt (whether or not you have separate or combined CEO/chairman). Based on the short term nature of the SF results at this point, I don't see how separate CEO and chairman positions could have made any difference.

I always viewed the Paramount acquisition as a way of reducing overall exposure to the core markets of CF pre-Paramount. I think they were willing to pay a premium for that. Didn't some of the Paramount parks perform better than the core CF parks this year? If you have Ohio and Michigan as your core draws (and Detroit and Cleveland within those states) to your flagship park/product, I am not sure you can be thrilled with your long term growth prospects.

We talked about the Apollo deal at length a while back. Was a risk no matter what management did. If you reject Apollo's offer and then cannot refinance with a subsequent bankruptcy possibly wiping out existing equity like SF and I am sure there would be folks here posting about how incompetent Kinzel is because he rejected a deal that would have paid $11.50/unit. Decide to move forward with the deal, have unitholders reject it and then get refinanced and you have folks complaining that you agreed to a breakup fee. Break up fees are very typical in that type and size of transaction. Much of the work needed to be done before you will know if the deal is approved. Folks won't enter into the deal without having some type of deal on getting reimbursed for those costs with a breakup fee.

I understand that a lot of folks are upset with not only what is happening with CF but with most things in the economy/financial world today. But I think Q Funding is just playing into the politics of all of that to get what they want. Nothing wrong with that but I think it should just be viewed as what it is. From what I understand of the sophistication level of Q Funding, I don't think they believe much of what they have said only what they want the outcome to be.

And I am waiting for Q Funding to cite the 4 cookie cutter swing rides and the price of food/drinks at CP as reasons why Kinzel should be fired. :)

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Tuesday, December 14, 2010 10:29 PM
Jeff's avatar

jive2 said:
I haven't followed the SF saga very closely so I might be completely off base here but how is Shaprio credited with turning SF around when he took them into bankruptcy?

That's a fair question to ask, but I think the problem is that the damage was done before he started. To his credit, he got the company to its first cashflow positive state ever, but there was just no way they could perpetually fighting the debt problem.

GoBucks89 said:
Folks reaction to the "not a finance person" always struck me as petty.

Honestly, I think that's because you haven't seen the situation up close. In practice, this guy runs the company as if he's the only one who has the answers, about anything.


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Wednesday, December 15, 2010 8:12 AM

Jeff said:

GoBucks89 said:
Folks reaction to the "not a finance person" always struck me as petty.

Honestly, I think that's because you haven't seen the situation up close. In practice, this guy runs the company as if he's the only one who has the answers, about anything.

And that may be the case. But as I noted, I think his management style is fair game for criticism. Good managers know how to delegate, bring out the best in the folks they manage, etc. To extent he does not/cannot do that, Kinzel deserves criticism.

I never knew the level of hatred for Kinzel that many folks have until I read this board and Pointbuzz. Not sure there are words in the English language to describe how much some folks dislike the guy. But it seems to me that if folks really liked him that his comment about not being a finance person doesn't even get noticed. Which is why I view folks latching onto that comment as petty.

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Wednesday, December 15, 2010 8:20 AM

I have been extremely critical of Kinzel over the past 5-10 years but I certainly don't hate the man. I've gone out of my way to detail what he did right with the company over the years. But, at some point in life we all hit our peak and then decline. It is the way it works.

When Kinzel started hitting his decline the value of my investment also declined. That bothered me. When his actions chased away valuable human resources in his company (some of them who I had come to be freinds with) that REALLY bothered me. When his ego started jeopardizing the future of the company then that REALLY, REALLY bothered me.

The Chairman and CEO of a company we all invest our energy, time and money in stated that he wasn't strong on the finance front at a time the company was facing major financial problems. And, for all intents and purposes he not only refused help but seems to have cast away his right hand man.

That certainly bothers me and it is anything but petty.

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Wednesday, December 15, 2010 9:47 AM

Has anyone looked at Q Fundings long term holdings? Do they usually sit on an investment for a while or do they turn and burn?

If they're a turner and burner then I'd be skeptical of their motives. Splitting of the Chairmen and CEO roles is certainly a no brainer. Everything else smells like a company turn to squeeze every dollar they can out of their investment and then running for the hills.


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