Cedar Fair ends buyout deal
Published: April 6, 2010 at 7:45 AM
Cedar Fair and Apollo formally pulled their buyout deal today. Apollo gets $6.5MM for their trouble and FUN is right back where it was before. Credit markets are much better now, so they have quite a bit more flexibility. Management added a "rights offering" meant to protect the little guy shareholder (or unitholder in this case). But it's really just management and the Board trying to protect their jobs.
And the largest stockholder in FUN said they have had talks with the guys buying Six Flags about a merger, but nothing imminent there either. The saga continues...
Update from Robert: Here's a write-up from the Plain Dealer, with some numbers for your crunching pleasure.
Published: April 6, 2010 at 12:44 PM
told you so...
I thought that this sale was a bit of a panic move from the beginning. Cedar Fair's debt load does have some size, but I don't think it's something they can't deal with. The selling price was too low, and the majority of Cedar Fair's investors agree with me, judging by their activism against the sale. Put it this way, it's real easy for upper management to sell a company when they get paid for their stocks and still get to keep their jobs. The economy has made their jobs hard, but it will recover and so will the company, provided they remain focused on the things that made them great.
When parks fall out of the hands of entertainers, and into the hands of corporate businessmen who care only about the bottom line, they become subject to the rule of money and money alone. Apollo is an investment firm that knows little about amusement parks, and cares just as little about them too. All they care about is profitability. Not that making money is a bad thing, but in this business the money comes by putting out a good product, not making cuts everywhere. At least Cedar Fair the company knows how to please it's fans and entertain them while making some money at the same time. I would much rather have the parks remain in their hands and under some manageable financial stress than in the hands of some corporate investment firm.
Interestingly enough, it's rumored that Apollo was also talking to Six Flags.
Published: April 6, 2010 at 1:38 PM
The debt load, as it currently stands, is a huge problem for Cedar Fair going forward. Theme parks are a capital-intensive business, and if you don't have money for new iron every year, you'll bleed market share until your survival is in question.
Cedar Fair needs to restructure its debt, find a new investor or sell. If it doesn't, then it faces the future that Six Flags just lived - financial instability leading to a) management takeover or b) bankruptcy or c) both.
The Apollo deal would have solved the debt problem, but with the economy showing a bit of improvement (or at least the lack of a crisis), and a market being established for theme park deals with SeaWorld and NBC/Uni, I can see easily why Q Investments and other Cedar Fair stakeholders saw the Apollo price as too low.
But just because Cedar Fair didn't do this deal doesn't mean that Cedar Fair can avoid making some deal in the near future.
Published: April 6, 2010 at 2:06 PM
You are correct with your last statement sir...everyone in the stock market has a price.
The debt is the main problem, but I think that they can get the debt restructured. The credit markets aren't frozen solid anymore, and the company is still very profitable. It isn't really underperforming, given the economic circumstances...which are getting better, and it's profitable. There is still some room for growth, particularly in Charlotte with Carowinds and the new coaster. Kings Dominion will also get some attention with their version of Intimidator. The economies in their respective cities/areas are better off than most.
I just don't buy that the company is in that much trouble that it absolutely needs to be sold. That doesn't mean it won't be, but given the stockholders attitude towards Apollo...it will be a tough sell.
Published: April 6, 2010 at 3:08 PM
I still think that FUN would be a better company going forward by selling parks, and concentrating on Cedar Point, Kings Island, Knott's, California's Great America, Worlds of Fun, Canada's Wonderland, Kings Dominion and Carowinds. (And the water parks.) Use whatever income it can get from selling Valley Fair and Dorney (as well as the management contract for Gilroy - though it could cost to get out from that) to retire debt, restructure the rest, and hire a hotshot creative director to find the best iron installation concepts they can for the remaining seven parks.
Published: April 7, 2010 at 6:11 AM
Cedar Fair's debt load is managable. Even in 2009, which was a brutal year as far as both the economy and weather, the company paid $68MM in dividends and repaid $161MM of it's term loan. That's 9.5% of total debt. The amazing thing about the Apollo deal was the company was ADDING debt. This was a panic deal done by a management team unable to navigate Wall Street. While Kinzel may remain safe (he's only got a couple more years there anyway), there will be huge pressure to make changes in the second tier of management.
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