SeaWorld Entertainment makes unsolicited $3.4 billion bid to buy Cedar Fair

Me too.

The deal makes sense if you are SEAS and you want to increase the amount of your business that doesn't rely on animals. It makes sense if you want to increase the number of properties whose successful operation will bankroll the expense of operating the Sea World parks and BGT.

The general attitude about such things is that it doesn't much matter what it means for FUN, because the result of a deal of this sort is that FUN ceases to exist, entirely absorbed into SEAS. Such a deal is kind of lopsided in that it doesn't mean much for FUN except that what used to be FUN isn't anymore, and instead is part of a larger organization...with a revolving door on the C-suite and apparently a micromanaging, activist board of directors that has caused the last few CEOs to resign in disgust.

On the FUN side, the only thing that matters for a deal like this is what the investors think. SEAS is offering FUN unit holders a pile of cash, in exchange for which they get out of their holdings in FUN. Could be tempting for unit holders looking for an opportunity to cash in their units. That's what the board-approved sale to Apollo was all about: a major unit holder (or three) was facing retirement and saw an opportunity to convert his interest in a recession-rocked company into a very nice pile of cash worth more than the units themselves were worth at the time.

What we also learned at that time is that some of the FUN unit holders aren't looking for an exit. Some of them are unit holders because when they sold their parks to FUN, they exchanged their ownership of their own parks for a fractional ownership in FUN, deals which let them retain some ownership and control while merging into a larger organization. Deals which turned out to be favorable to the previous ownership and let the combined company thrive in the process. A true win-win arrangement. And now these FUN investors, holding on to a stake in their own businesses that in some cases goes back several generations, are going to be convinced to walk away for a meager cash premium over the unit price, in an unsolicited offer?

I think some of the FUN unit holders may feel a little differently than the Wall Street analysts do. It might not be the most rational or profitable position especially in the short term (which is all that Wall Street analysts really care about). But when your name is on the door, you tend to think carefully about whether you want to sell it, and who you want to sell it to.

--Dave Althoff, Jr.

This says about 52% of Fun equity is held by institutional investors.

https://money.cnn.com/quote/shareholders/shareholders.html?symb=FUN...titutional

Well, yes to both RideMan and GoBucks. It does seem likely that some portion of the shareholders may be motivated by more than just financial returns, and I read in one of the articles I've come across that there may be a supermajority provision that gives them considerable power. It's also the case that some of those institutional shareholders may actually represent shares held by people named Jourdan or Knott who have units in trust or similar accounts - the BofA private bank is kind of interesting - or units held in 401k accounts or other accounts representing the interests of senior managers who may not be interested in working for the notorious SEAS board. So I'm not sure that 52% is either enough to get a transaction approved by itself, or that all of that 52% will vote yea.

On the other hand, most of that 52% will vote for the right deal, and there's a number out there that will get it done, I'm certain.

I'm still wondering where the cash will come from, though. I wouldn't think SEAS could borrow that much through conventional means.

I think a sale would require a 2/3rd vote. So the 52% definitely isn't enough. And all of the institutional investors won't necessarily vote the same way. But its a sizeable block of equity holders who won't likely be swayed by nostalgia.

The debt issue may even be bigger than just financing the acquisition. Cedar Fair has about $2 billion of notes that have change of control provisions. Depending on the structure of the deal, those noteholders may have a put right meaning the company must buy those notes back. So in addition to $3 billion for the acquisition, they may need to find financing sources willing to refinance the notes. And their credit agreement may have a change of control provision as well which would mean additional refinancing or at least lenders you need to get on board for continuing their debt facility.

I don't know how it happened, but the Apollo sale was approved by the board, but ultimately failed. One of the things that happened was that several institutional investors suddenly took a great interest in Cedar Fair and bought large numbers of shares, buying out other (less interested?) investors who were happy to get the nice premium. These investors bought into the company for the purpose of voting against the takeover deal, and in fact had the votes to do exactly that...but by buying up so much excess equity they actually pushed the share price well above the value of the deal, which, again, prompted a massive "no" vote.

After Apollo went away, so did those investors.

I can't say for certain. But either someone put together a carefully timed pump and dump scheme, or some favors got called in by certain owners. Personally, I think the Sea World deal isn't big enough to convince a board and investors who are comfortable with Cedar Fair and not looking for an exit just yet...remember this is an unsolicited offer...and I think this offer will die the same way the Six Flags deal did. But if it doesn't, and if Cedar Fair starts to look interested, I'm guessing we will see an interesting battle...and I still think the deal will fail.

--Dave Althoff, Jr.

I don't think it's fair to call what happened a "pump-and-dump" - the hedge fund (Q Investments) thought the private equity offer was too low and too favorable to management, took a bullish position, and instigated a change in management that led to a new CEO named Matt Ouimet. Most people think that worked out well.* They did sell most or all of their shares afterward, but it's certainly not the case that they were committing the kind of fraud that typically characterizes a pump-and-dump scheme.

https://www.nytimes.com/2011/06/12/business/12gret.html

https://www.news-herald.com/2011/06/21/former-disney-exec-taking-ov...edar-fair/

*Former management of Cedar Fair possibly excepted.

I don't think anyone (including me) thinks it was a fraudulent scheme or anything like that. Besides they were pumping the share price with "their own" money; schemes don't work that way.

But what prompts a hedge fund to suddenly take an interest in a comparatively obscure Ohio company, take a large enough stake in the company to take an activist position on a pending merger, advocate for a change in administration...and then go away? I don't think this was just a matter of smart or lucky market timing. Q was working for somebody. Either somebody who thought that Apollo would be better off without Cedar Fair, or somebody who thought that Cedar Fair would be better off without Apollo. That, or the fund managers are just well informed coaster nuts...but if that were the case I wouldn't have expected them to leave when it was 'over'.

--Dave Althoff, Jr.

Q Investments is a mutual fund (rather than a hedge fund though some use the terms interchangeably). Public companies aren't really obscure to mutual funds. In a highly competitive fund space, you are trying to find a diamond in the rough (or at least something off the beaten path). My recollection is that Q did well with its investments in Cedar Fair while it held them. And then recently, Cedar Fair has tended to lag the S&P 500. So its exit may have been well timed. Again would need to look back at when they bought and sold.

Q Investments also battled Cedar Fair board on certain matters and lost on one that was approved by majority of unitholders who voted but not the requisite 80% of unitholders (was an amendment to the org docs allowing for unitholders to nominate people for the board). Thought at the time was the 80% vote was pretty much impossible to obtain because there was a signficant percentage of unitholders who never voted on anything (not uncommon for public companies). Q may have determined that the return was good and without more input, they didn't view the future returns as worth it.

Now maybe there was more to it than that. Tough to know. But its tough to get funds into spats just for kicks. And risk with public companies and SEC issues is too great to want to mess with that too much (if at all).

i'll pile on and say this is a very bad thing for the FUN parks as we know it. Yes, a true visionary could see this as a chance to expand SEAS culinary advantages into the horrid food at FUN, and take FUN's exceptional operations (dispatch times) and IT (don't get me started on the horrific SEAS website) and push that into SEAS, and use the stable C-suites of FUN to shore up the merry-go-round at SEAS.

But that would be the scenario if FUN were buying SEAS. and that's not the way this deal is structured.

This way we're going to get the horrific SEAS C-Suite, cutting costs at the FUN parks, while probably assuming their ops are superior to FUN, gutting Charlotte and Sandusky mgt, leaving the catastrophe of SEAS C-suite drama, while being too cash strapped post-close to do anything but milk the parks for a few years.

Years ago when discussing post-Busch SEAS options, we discussed potential risks for the Virginia parks if SEAS were to cleave off the non-animal parks. There is no upside to merging the BGW and KD parks into a single season pass program, (looking at you GL/SWOhio) so that's an operational hurdle yet to overcome.

I'm a huge fan of the SEAS parks, especially the food and beverage aspects, but their ride ops are so abysmal (Looking DIRECTLY at you San Diego) that I fear for the FUN parks in the short run. I fear for the entire bundle in the long run as the mgt team in SEAS is a cluster**** of obscene proportions and taking on $5B in debt (cash price plus assumption of FUN"s debt) will leave them beholden to short term Wall Street demands and not long term sustainable growth. That's a bad place to be for sh*tty mgt.

People who are more in favor of this going through keep talking about the "culinary upside" to SEAS buying Cedar Fair, to which I ask...what IS that culinary upside right now, exactly?

I'm not denying that SeaWorld parks had the edge in terms of food in the past, but do they really have it now?

I can't speak for the other parks, but in Florida this October, anything remotely interesting or ambitious had been stripped from the menu at BGT and SWO, and even Discovery Cove's food has been downgraded. Unless something has changed in the past few months, when you're eating you might as well be at Frontier City as the parks operate now. Typical, generic theme park eats like burgers and chicken tenders are in abundance, with the Zambia Smokehouse at BGT (and presumably the similar restaurant at SWO) being the ONLY exception and the only restaurant providing anything remotely interesting. It was stark not only compared to Disney and Universal, where it wasn't hard at all to find good food, but also compared my memories of my visits to these same SEAs Florida parks three years ago.

Whereas the Ohio parks have been getting more ambitious and interesting with their seasonal and festival offerings. It's clear Knott's has been doing the same thing. Even Valleyfair has a few unique, regional food items now. I'm not saying everything is perfect or that you couldn't find a bad meal at a CF park, but the impression I get (food and otherwise) is that CF parks very much are at least trying to improve their offerings and SEAS is just racing to the bottom.

I'm not one who is saying it, but I also only have late 90s and early 2000s Busch Tampa and Busch Williamsburg food memories from those parks. And the 2001 offerings on the Seaworld side of Six Flags Worlds of Adventure.

BGT/BGW from that era is still the best amusement park quick service food I have ever had. But I'm hardly surprised those days are long gone, seeing how many other positives from the parks in those days have long been gone.

At the media event for IceBreaker, they had the new counter service and bar locations open for us. The counter service is burgers, but solid toppings and a blue bun, waffle fries with a great seasoning blend. The bar has some great signature drinks with actual liquor, frozen stuff and bottled and tap beers. At Tampa in January I had some decent Asian fusion stuff. Also had some delicious treats on the Christmas trail this past holiday.

Compared to the Busch days at the turn of the century, I would say there's somewhat less variety in the big venues, but it's still good stuff.

Ride operations... yeah. Not great.

In the very unlikely event this were to go through, destination parks like Cedar Point and Knott's may undergo some less than ideal changes, but it would be some of the smaller Dorney/Worlds of Fun/Michigan's Adventure parks I'd worry about getting Geauga Laked.

Jeff said:

Ride operations... yeah. Not great.

2016: Orlando gets a fantastic B&M hyper coaster loaded with airtime, something the Orlando parks have never had!

SeaWorld: yeah, but we're going to do what no other major park does with their marquee attraction! Run it with one train almost all the time!

There is absolutely no risk of SEAS spinning off, selling, or closing BGW. SEAS needs more of their parks to not rely on animal acts, not fewer, and building up the Sesame water parks, and improving the ride line-ups at the Sea World parks is a step in that direction. BGW is their park that makes a decent profit.

That makes their play for another park chain make at least some sense. If they really want to expand via acquisition, though, I think they would have more luck going after certain individual parks; perhaps they could buy Darien Lake ( 8-) ).

Trouble is, the parks that some of the other operators might want to unload...maybe Great America, Darien Lake, Wild Adventures (wouldn't that be a great fit for SEAS?), Six Flags Discovery Kingdom (ditto)...are probably not the properties SEAS is really all that interested in.

--Dave Althoff, Jr.

CreditWh0re said: ... and taking on $5B in debt (cash price plus assumption of FUN"s debt) will leave them beholden to short term Wall Street demands and not long term sustainable growth.

It'll be more like $8B in debt: $2.9B of FUN debt, $2.2B of SEAS debt and $3.4B purchase price, less the $1B the two companies have in the bank (which they might want to keep for liquidity and/or a cushion against downturns, future pandemics, etc.) So, yeah.

FUN's current notes are around 6%, so that's half a billion per annum in debt service. The two companies reported earnings before taxes of $300MM in 2019 - so you tell me how that's going to work. (I suppose they could sell off the smaller parks post-merger, but they would obviously fetch relatively low prices, and one could imagine it not working out well for those parks.)

"taking on debt" was used in the sense that it was additive to SEAS current debt load, but yes, the number is that staggeringly high. I would also point, at the risk of sounding like Gary Story (shudder) that you look at EBITDA and not EBIT in 2019 as a measure of free cash flow. You're not totally wrong though.If it happens, this is not going to end well

What do you have against DA?