April 7, 2010
The Death of a FUN Deal
As predicted by our friend the Deal Professor, Apollo Management’s proposed $2.4 billion leveraged buyout of Cedar Fair, the amusement park operator, has died. This deal and its death are important for two reasons. One, it's yet another confirmation that the LBO market is going to continue to be slow at least in the next year. Second, the deal represents the dangers that boards face in moving forward with M&A transactions. The two sides terminated the deal, with Cedar Fair agreeing to pay Apollo $6.5 million for its expenses, in advance of a scheduled April 8th unitholders meeting since it was clear that the deal would be voted down by Cedar Fair’s unhappy investors. This is a big blow to the Cedar Fair board that just months ago unanimously approved the transaction and even got two fairness opinions (for which they paid $3 million in total) to support their recommendation. Knowing that the company is now in a vulnerable position, in connection with terminating the Apollo deal, the board also adopted a 3 year poison pill with a 20% trigger.
The next few months will likely not be FUN for the Cedar Fair board and management. The company has a heavy debt load which it will need to refinance. In addition, the company’s next scheduled unitholders meeting is on June 7th. The company’s investors, some of whom tried to hold a meeting on the street when the company postponed the initial meeting to vote on the Apollo deal, are really unhappy with the board and management. I expect that there will be a big push to replace at least some of these people. The Cedar Fair board and management should brace themselves for a wild ride in the next few months. I suspect that the Cedar Fair investors are not going to be distracted by all the fun they can have on the company’s two new roller coasters, the Intimidator305, a 305-foot-tall roller coaster at Kings Dominion, and Intimidator, a 232-foot-tall roller coaster at Carowinds.
In the meantime, I look forward to following the fallout from this deal. Busted deals may not be fun for the players, but they do provide some amusement for law profs.
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