News SeaWorld Makes $3.4 Billion Takeover Bid for Cedar Fair

[horsesboy]

The fact that it’s been one full week and we haven’t heard anything official since the original article was posted absolutely TERRIFIES me.

I’ve operated under the assumption that the longer it takes to hear anything, the more likely they’re gonna come forward with some sort of deal, whether it’s a full buyout or a partial acquisition. I think this way because it only took Cedar Fair three days to say “No, Thanks” to the Six Flags deal. Am I wrong to do so?

I mean they didn't turn it down right away but that doesn't mean it's anywhere near a done deal either.

This looks to be a pretty good look at where things stand and what likely is going on and where it might go from here.

MSN

www.msn.com

 

[Zachary]

Doesn’t Knotts give SEAS a stranglehold on the OC/SD market, if you consider Disney as a fairly different product market. Magic Mountain is there but that’s a long drive even from much of OC. This lets SEAS have more pricing power at both Sea World and Knotts while cross selling passes.

Oh, for sure! I don't want to make it out like I don't think SEAS wants Knott's, it's just that I think SEAS wants the majority of the rest of the chain for a reason other than the justifications behind Knott's (and their water park), Kings Dominion, Dorney Park, and Schlitterbahn New Braunfels. I just used Knott's as an example of a park with a lower ceiling since it was already being talked about.

 

[mwhinva]

Well, if CF management aproves the deal, they are halfway there. The unit holders have to approve it and I heard there has to be a super-majority of unit holders (65%) that have to vote for the sale. Else, no deal.

 

[Zachary]

Just thought I'd share this inventory of what Cedar Fair is currently packin'.

Park​	Operating Calendar​	Water Park​	Accommodations​	Property Status​
California's Great America South Bay Shores	Mid-Mar — Oct + Christmas	Integrated	None	Completely Developed
Canada's Wonderland Splash Works	May — Oct + Christmas	Integrated	None	Nearly Completely Developed
Carowinds Carolina Harbor	Mid-Mar — Oct + Christmas	Integrated w/ Dedicated Entrance	Hotel, Campground	Mostly Developed
Cedar Point Cedar Point Shores	May — Oct	Separated	2 Resorts, 2 Hotels, Campground	Completely Developed
Dorney Park Wildwater Kingdom	Mid-May — Oct	Integrated but Separable	None	Mostly Developed
Kings Dominion Soak City	Mid-Mar — Oct + Christmas	Integrated	Campground	Partially Developed
Kings Island Soak City	Mid-Apr — Oct + Christmas	Integrated w/ Dedicated Entrance	Campground	Partially Developed
Knott's Berry Farm Knott's Soak City	Year-Round	Separated	Hotel	Completely Developed
Michigan's Adventure WildWater Adventure	End of May — Sept	Integrated but Separable (?)	None	Partially Developed
Valleyfair Soak City	Mid-May — Oct	Integrated	None	Partially Developed
Worlds of Fun Oceans of Fun	May — Oct + Christmas	Integrated w/ Dedicated Entrance	Campground	Partially Developed
Schlitterbahn New Braunfels	Mid-Apr — Sept	N/A​	Resort	Completely Developed
Schlitterbahn Galveston	Mid-Mar — Sept	N/A​	None	Completely Developed

 

[horsesboy]

Well, if CF management aproves the deal, they are halfway there. The unit holders have to approve it and I heard there has to be a super-majority of unit holders (65%) that have to vote for the sale. Else, no deal.

That is correct and the unit holders did vote down a 2010 deal to sell to an equity firm that the board had sent to them.

 

[mtorange]

Well, if CF management aproves the deal, they are halfway there. The unit holders have to approve it and I heard there has to be a super-majority of unit holders (65%) that have to vote for the sale. Else, no deal.

This brings another layer, would current shareholders accept this deal? I’m not a shareholder, but I’m not so sure I would.

 

[mwhinva]

This brings another layer, would current shareholders accept this deal? I’m not a shareholder, but I’m not so sure I would.

I've heard that a good chunk of CF unit holders have a vested interest in the business entity itself and are not just there for pure profit motives. Should be interesting to see how this deal evolves. Makes me wonder if the CF board is currently trying to get a pulse on the unit holders about this deal.

If more than 35% of the unit holders are giving this offer a thumbs down, then the CF board will have to go back to Seas to sweeten the deal or break it off.

 

[Mushroom]

I've heard that a good chunk of CF unit holders have a vested interest in the business entity itself and are not just there for pure profit motives. Should be interesting to see how this deal evolves. Makes me wonder if the CF board is currently trying to get a pulse on the unit holders about this deal.

Do you remember where you read this? Very interesting if true.

 

[mwhinva]

Do you remember where you read this? Very interesting if true.

It was not something in a business article (like from an analyst). It was based on like a interview/blog of a unit holder and passing along some insider insight they gained. This was was a while back though (8-10 years ago). It could have very well been around the time of the failed sale to that equity firm. Though, I don't remember that being mentioned.

 

[Zachary]

I remembered having read something about this voting issue as well so I went searching and found the quote.

The analysts, including Truist's Michael Swartz, also highlight that getting Cedar Fair shareholder approval for a deal may be tough because a super-majority vote (67% of existing unit holders) would be required for approval because of FUN's MLP structure.

Cedar Fair stock gains after analysts sees SeaWorld bid as too low (NYSE:SEAS)

Cedar Fair (FUN) rose 2.3% after gaining 4.3% on Monday after a report that SeaWorld (SEAS) offered to acquire the amusement park operator for $60/share as analysts see the bid as too...

seekingalpha.com

 

[warfelg]

Their water park is already separated, they have a relatively robust, successful event selection, they're not among the cheapest FUN parks, they're already year-round, they already have a resort,

You know…it’s funny, being basically turnkey with what they want (hotel) added is why I think Knotts is a great fit for them. It’s set up for what they want without having to spend to do it.

 

[mwhinva]

I remembered having read something about this voting issue as well so I went searching and found the quote.

Cedar Fair stock gains after analysts sees SeaWorld bid as too low (NYSE:SEAS)

Cedar Fair (FUN) rose 2.3% after gaining 4.3% on Monday after a report that SeaWorld (SEAS) offered to acquire the amusement park operator for $60/share as analysts see the bid as too...

seekingalpha.com

I knew it was in the mid 60's percentage wise. Though, I was thinking 63%-65%. I didn't realize it was 67%.

There are many folks that feel the super-majority requirement vote makes this a hard sell to anyone interested in CF. Either SEAS needs to up the anti or the CF board will have to do a major song and dance routine to convince that percentage of unit holders to go for this offer.

I still think CF is in the process of getting feedback from the unit holders to see if even they want to present the offer to them. If the CF board doesn't believe they will have the votes, they will give SEAS a thumbs down.

 

[mtorange]

I wonder if we’ll hear anything concrete about the bid either before or during Cedar Fair’s Q4 earnings call next Wednesday (February 16th). If CF doesn’t bring it up themselves, I guarantee you someone will ask about it during the Q&A session. We should get a good idea of shareholder opinion during that call.

Also, for the record, SeaWorld and Six Flags both have earnings calls scheduled for Thursday, February 24th.

 

[Alf33]

I don't remember where I read it but an article on the purchase offer stated that the SEAS offer was an all cash one. I wonder if this would influence on how the FUN shareholders would vote.

 

[Icer]

I HIGHLY doubt Cedar Fair walks away and sells all of it. A split that makes sense to me is if it is negotiated that Cedar Fair sells off a chunk of parks and becomes the "midwest park chain", where they effectively rid themselves of any major competition whatsoever. Keeping Valleyfair, Michigan's Adventure, Cedar Point, King's Island, Dorney, Worlds of Fun, and Canada's Wonderland (proximity wise makes sense, I doubt SEAS has any specific interest in one foreign park). SEAS would get KD, Carowinds, the Schlitterbahns, Knott's and California's Great America. This makes it so SEAS only has one large scale regional competitor in Six Flags (of which they offer a vastly different product so they don't really compete very much) and the obvious scattered local one offs. The parks they get make sense for their philosophy going forward as well, with Knott's being their example of how they want each of the other parks to get (though it will be tricky having both BGW and KD serve as large scale destinations, realistically the two would compete with each other and limit the other too much, interesting business convo to be had there).

Obviously this would come with a price decrease, and something like this I believe circumvents the shareholders moreso than an entire acquisition (depends on the details of the structuring of their shareholding), though it would be possible that rebranding of these parks would have to occur to a degree to clearly separate them (get rid of the flags, can't use "King's", etc.) SEAS would only be strengthening their foothold in 3 of the 4 areas they actively compete in (CA, TX, VA). Only new market would be southern NC, which they can easily establish as a year round attraction of a higher investment grade than Carowinds currently is.

Keep in mind it is very common for business offers to overshoot what they really want as a form of making the "compromising negotiations" fall closer to where they really want to be. I am sure SEAS would gladly take the whole bag, but I highly doubt there is anyone in the SEAS boardroom that would say "no deal" if parks like Worlds of Fun, Valleyfair, and Michigan's Adventure were pulled from the deal. Ultimately, they don't lose much in not getting the crown jewel of Cedar Point either, since they are effectively trying to turn all of their parks into the massive destination Cedar Point is. It would be a slow suffocation of what is left of CF as SEAS gradually grows their empire to be destination parks in areas never thought to be a destination, and SEAS would probably end up buying the chunk CF kept in a few decades for even cheaper than they would get it now.

 

[horsesboy]

I don't remember where I read it but an article on the purchase offer stated that the SEAS offer was an all cash one. I wonder if this would influence on how the FUN shareholders would vote.

It is an all cash offer which is one of the differences with the failed SF offer

 

[rswashdc]

The challenge would be convincing CF shareholders that they can’t get a higher eventual share price absent the SEAS offer. If CF is leaving money on the table through sub-optimal investment and pricing strategy (and I definitely feel the latter is the case), then SEAS buyout offer makes little sense as they could simply replace management with better management to improve their share price beyond the $60 offer.

 

[mwhinva]

I HIGHLY doubt Cedar Fair walks away and sells all of it. A split that makes sense to me is if it is negotiated that Cedar Fair sells off a chunk of parks and becomes the "midwest park chain", where they effectively rid themselves of any major competition whatsoever. Keeping Valleyfair, Michigan's Adventure, Cedar Point, King's Island, Dorney, Worlds of Fun, and Canada's Wonderland (proximity wise makes sense, I doubt SEAS has any specific interest in one foreign park). SEAS would get KD, Carowinds, the Schlitterbahns, Knott's and California's Great America. This makes it so SEAS only has one large scale regional competitor in Six Flags (of which they offer a vastly different product so they don't really compete very much) and the obvious scattered local one offs. The parks they get make sense for their philosophy going forward as well, with Knott's being their example of how they want each of the other parks to get (though it will be tricky having both BGW and KD serve as large scale destinations, realistically the two would compete with each other and limit the other too much, interesting business convo to be had there).

Obviously this would come with a price decrease, and something like this I believe circumvents the shareholders moreso than an entire acquisition (depends on the details of the structuring of their shareholding), though it would be possible that rebranding of these parks would have to occur to a degree to clearly separate them (get rid of the flags, can't use "King's", etc.) SEAS would only be strengthening their foothold in 3 of the 4 areas they actively compete in (CA, TX, VA). Only new market would be southern NC, which they can easily establish as a year round attraction of a higher investment grade than Carowinds currently is.

Keep in mind it is very common for business offers to overshoot what they really want as a form of making the "compromising negotiations" fall closer to where they really want to be. I am sure SEAS would gladly take the whole bag, but I highly doubt there is anyone in the SEAS boardroom that would say "no deal" if parks like Worlds of Fun, Valleyfair, and Michigan's Adventure were pulled from the deal. Ultimately, they don't lose much in not getting the crown jewel of Cedar Point either, since they are effectively trying to turn all of their parks into the massive destination Cedar Point is. It would be a slow suffocation of what is left of CF as SEAS gradually grows their empire to be destination parks in areas never thought to be a destination, and SEAS would probably end up buying the chunk CF kept in a few decades for even cheaper than they would get it now.

There is one thing you left out . . . and they are the unit holders. The CF board is obligated to take actions that serve the best interests of those unit holders. If 67% of those investors feel selling part of the park chain will increase the value of their units long term, then that type of deal would go through.

Another thing you brought up is that the offer is a cash deal. So that means the unit holders get $60 per unit and then they have no further investment in the new business entity. I guess they could reinvest in SEAS stock or in something else entirely.

Secondly, units/stocks are really long term investments. There are some that play the "shorting game" where they buy stocks at a lower price and, if the stock price goes up in a few weeks/months, they sell for the short term gain, i.e. for a quick profit. But, those types of investors are a minority and the stock market doesn't like those types of actions and have regulations to discourage/block them.

The majority of CF unit holders are in it for the long term. Remember, about 12-14 years ago, in the economic crisis of 2008, CF units were trading at $4-$5 dollars. There were a certain percentage of stakeholders that sold off units. But, the majority hung on, with some buying more units at that price and new investors coming into the fold. Just 4 years ago CF units were worth $75-$76.

If the majority of unit holders have faith in CF management to make their investment grow long term and the CF board has a good handle on the demographics/mindset of the unit holders, then this deal might not be going anywhere.

If the CF board believes the deal is favorable to the unit holders, then it will go to a vote and the unit holders make the final decision.

 

[EdK]

I read in one of the articles posted here earlier from the motley fool is that CF has more than $3 billion in debt it's trying to pay down and hasn't had a distribution to shareholders in 23 months and doesn't plan to continue distributions until the debt is paid down. I can see CF selling some of the less profitable parks to SEAS to pay down this debt faster. As Zachary mentioned these would be the parks that SEAS can then develop further for higher profits. I don't know how much more profit you could squeeze from Cedar Point or Knott's Berry Farm (as previously mentioned).

Cedar Fair Announces Full Redemption of All Outstanding 5.375% Notes Due June 2024 - Cedar Fair

Cedar Fair Entertainment Company (NYSE: FUN), a leader in regional amusement parks, water parks and immersive entertainment, announced today a full redemption of its 5.375% Notes (the “Notes”) due June 2024 issued pursuant to an Indenture (the “Indenture”) dated as of June 3, 2014.

www.cedarfair.com

 

[mtpelepele]

How do you squeeze more profit? Easy. Let's take Knott's. That old, but intricately themed, mine ride and log flume? Yeah, slash that maintenance budget. Nobody notices theming. That awesome house made fried chicken? Yeah, I'm sure Sysco makes something just as good, right? That's what SEAS will do if the current management takes over, and why, as a CF passholder and shareholder, I am vehemently against this buyout attempt.