Apollo and Cedar Fair Abandon a $2.4 Billion Leveraged Buyout

While leveraged buyouts are starting to reemerge, it is still not easy to pull off deals. Apollo Management's $2.4 billion deal for Cedar Fair (FUN) has just collapsed because of a lack of shareholder support. Apollo got a mere $6.5 million as a break-up fee.

And last year, the private equity firm had to scrap another merger -- its proposed $435 million acquisition of Legacy Reserves LP -- due to higher oil prices and improved credit markets.

Cedar Fair Pays the Price

Cedar Fair is one of the largest regional amusement park operators in the world. In all, it runs 11 amusement parks, six outdoor water parks, one indoor water park and five hotels. Some of the locations include Knott's Berry Farm in Southern California and Great America outside of San Francisco.

To get this scale, Cedar purchased Paramount Parks back in 2006. True, the deal diversified the company's revenue base and was a good long-term investment. But the debt load was stifling.

So Cedar evaluated an equity offering as well as divestitures. Unfortunately, the company ran out of time as the U.S. economy sank into a recession and credit markets seized up. As a result, Cedar reduced its 2009 cash distribution to shareholders from $1.92 to $1.00 per unit.

At the same time, the company engaged in discussions with Apollo. But the private equity firm had lots of difficulties getting financing commitments and proposed a deal at only $11.50 per unit.

Is There Another Bidder?

Since Cedar and Apollo struck their deal in December, the financial markets have certainly gotten much better -- and so have valuations. In light of this, Cedar's major shareholders -- which include Q Investments and Neuberger Berman -- were simply unimpressed with the price tag. For example, it may now be much easier to refinance the company's $1.6 billion debt. Moreover, the summer business may be especially strong, in light of new rides like the Intimidator, which has a 305-foot drop.

Interestingly enough, the shares of Cedar are now trading at $12.60 and there are even rumors that another bidder may come to the table. In a recent SEC filing, Q Investments notes that it was approached by bondholders from Six Flags regarding a "hypothetical possibility of merging or combining."

Such discussions are common but do not necessarily result in a deal. Keep in mind that Cedar had a go-shop clause in its buyout contract with Apollo and talked to 32 potential buyers. None made a bid.

In other words, it looks like Cedar's stock price is heavily impacted by speculation and rumors. But ultimately, the company's success will depend on how business rebounds and the terms it gets on new financing arrangements.

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