Amusement park owner Cedar Fair LP (NYSE: FUN) postponed its shareholder meeting that was scheduled for a vote on Apollo Global Management's buyout offer. Cedar Fair announced the buyout offer from the private equity group in December, 2009. The vote on the merger was avoided, though a "no" vote was likely.
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A Brief History of the Cedar Fair Deal
Cedar Fair, operator of 11 amusement parks including Cedar Point, Kings Island, Carowinds, Knott's Berry Farm and others, received an offer at $11.50 per unit share from Apollo in December. The stock has traded as low as $6.03 and as high as $13.56 in the last 52 weeks. The once prodigious dividend was scheduled to be suspended, to the consternation of long-time income shareholders. The company has chafed under debt it incurred, which still stands at nearly $1.6 billion, partially from its acquisition of Paramount Parks.
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Why the Apollo Deal Is In Jeopardy
The immediate reason is that since the Apollo deal requires a two-thirds "yes" vote and the two largest shareholder groups, holding a 27% stake in the company, oppose the deal, defeat looks certain. Both Q Investments and Neuberger Bauman are against the deal, as well as three proxy rating agencies which recommended voting against it. For the deal to fail, only an additional 7% of no votes or abstentions would be needed.
Shareholder Ire
Underlying the tug of war between the private equity group and the two other investment groups is the dissatisfaction of the individual shareholders. Cedar Fair grew from what was originally a local amusement park, Cedar Point, to an operator and owner of a large portfolio of prominent national amusement parks. Many of the shareholders held the limited partnership units to collect the fat dividend, which ranged from $1.40 a share to $1.92 per share from 1999 through 2008. The yearly highs on the stock price ranged from over $20 a share to $36 a share. With the Paramount debt and the recession dropping revenues and earnings for Cedar Fair, the company decided to suspend the dividend.
The plan was to pay down debt and one day restore the dividend, as prospects for revenue and earnings would improve once the recession ended. Conservative estimates of $1.16 to $1.36 per share in annual earnings the next couple of years would give the takeover price of $11.50. A PE multiple ranging between 8.45 and 9.9, contrasted with the stock's eight year PE average of just under 20, reflects the financial beat down that these shares are facing. So, individual income shareholders losing their dearly held dividend, along with the buyout price, which seems ridiculously cheap on a long-term basis, has set up the balky situation for the deal.
Competitors
Walt Disney (NYSE: DIS), owner of its famous parks, has also found these challenging business times. Its amusement park unit was off by 2% in profits with flat revenue as of last quarter. Likewise, Great Wolf Resorts (Nasdaq: WOLF), water park operator, had a loss for its recent quarter and a loss for 2009. In other travel and leisure, there are glimmers of better things ahead. Carnival Corp (NYSE: CCL), with its cruise lines, is already showing strong advance bookings for this year. Royal Caribbean Cruises, Ltd. (NYSE: RCL) also expects net yields to rise by 3-6% this year.
The Future and How to Invest in Cedar Fair - If At All
The arbs are all over this deal, and have been since the deal was announced in December and the stock went from trading just under $9 a share to overshoot the buyout price and momentarily settle at $12. Stay tuned, the gyrations may not be over, so traders and investors need to be very careful. The ball is in Apollo's court, to make a higher offer, do nothing, or something completely different that may involve the two large institutional shareholders. Or, they could walk away. Many of Cedar Fair's individual shareholders wouldn't think that's a bad thing. (To learn more about private equity, read What Is Private Equity?)
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