Talk about a wild ride. The amusement park operator Cedar Fair announced on Monday night that it had postponed Tuesday morning’s meeting for unit holders to vote on the company’s acquisition by Apollo Management, saying it wanted to provide more time to solicit votes and proxies. For those unit holders who have already made the trip up to Sandusky, Ohio, for the meeting, they will have a relatively long wait. The meeting is postponed until April 8. Perhaps Cedar Fair will placate these unit holders with some free amusement park tickets in the interim.
The meeting was postponed instead of adjourned in order to avoid a vote by Cedar Fair’s unit holders on adjournment, as well as some issues under Delaware corporate law.
Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the legal aspects of mergers, private equity and corporate governance. A former corporate lawyer at Shearman & Sterling, he is a professor at the University of Connecticut School of Law. He is the author of “Gods at War: Shotgun Takeovers, Government by Deal and the Private Equity Implosion,” which explores modern-day deals and deal-making. The limited partnership agreement appears to allow both unit holders and the general partner to adjourn the meeting. However, an adjournment by unit holders would have required a vote, while an adjournment by the general partner would be scrutinized by the Delaware courts under the case of Mercier v. Inter-Tel and possibly found without a compelling justification. At least, this is what it appears to be, as things are murky here because Cedar Fair is a limited partnership and the default rules governing what happens in these circumstances do not exist as it would with a corporation.
Instead, we are left with the bare rules set forth in the limited partnership agreement.
A postponement simply avoids these issues and can be made by the general partner of Cedar Fair. The company’s partnership agreement tracks the Delaware General Corporation Law, which requires that the “record date shall not be more than 60 nor less than 10 days before the date of such meeting.” The agreement (in section 15.7) also appears to allow for one adjournment for up to 30 days beyond that without having to reset the record date. So, this postponement does not raise issues of having to reset the record date, something that also could be viably challenged under Delaware law.
In addition, under Section 5.04 of the acquisition agreement, Apollo and Cedar Fair jointly agree that Cedar Fair can adjourn the meeting as far back as the April 8 date. However, the acquisition agreement (section 5.04) also appears to allow for Apollo to demand additional 15-business-day adjournments or postponements up until May 10. If this occurs, the record date of Feb. 12 (the date on which the unit holders who can vote is determined) would then need to be reset unless the meeting were adjourned, setting off a 30-day extension of the record date period.
Of course, an adjournment would raise the specter of a vote by unit holders on this issue. Meanwhile, a postponement could be challenged in Delaware since it appears to require that the record date be reset and would rejigger the base of unit holders who can vote on this transaction. Again, there is a lack of clarity here.
Ultimately, this all is a lesson for deal lawyers and companies about getting their shareholder bylaws and the merger agreement mechanics on postponements and adjournments right in advance. Targets should be aware that granting a bidder the right to demand a meeting extension can clash with Delaware law. limiting a target’s ability to postpone or adjourn the meeting and in conjunction reset the record date.
Cedar Fair needs two-thirds of all its unit holders to vote yes on the acquisition by Apollo. Given the positions held by Q Investments and Neuberger Berman, which oppose the transaction and together hold total a 27 percent stake in the company, the odds of keeping another 7 percent of the unit holders from voting no — or not voting at all — appears low. This is particularly true since the company went zero for three in the proxy rating agency recommendations. All of them have recommended against this transaction.
So why the delay? Well, there is the possibility of a deal during this time and an increase in the consideration, and that may be justification enough for the postponement. Private equity is plowing into the amusement park industry and perhaps Apollo can make a purchase of Six Flags or another property to find some synergies or cost savings and justify a price increase.
Still, Apollo, which was founded partly by people formerly with Drexel Burnham Lambert, never struck me as a kinder, gentler private equity firm. They showed in the Huntsman-Hexion deal that they were not afraid of taking a hard-line economic position despite any hits to their reputations. And really, what reputational hit is there for refusing to increase your bid? So, I am skeptical that they will raise in this environment given the lack of competing bidders. But then again, I bought Ask Jeeves back in the Internet boom at $150 a share, so what do I really know?
Alternatively, Cedar Fair is pushing forward a time-tested argument in failing deals. It is basically the “we stink” argument. In essence, the results are not great, and the company has too much debt and a partnership structure that does not work if it cannot pay dividends. So, vote for a sale since this is the best you are going to get. Of course, as management we’ll still stick around to take part in any possible upside. I’ve seen this argument before and it can work and cow shareholders into a yes vote, although the presence of such a large stake in opposing hands and the high threshold vote here makes it unlikely.
But here is some free advice for the Cedar Fair board. If Apollo raises its bid, it will also seek to increase the break-up fee from the $6.5 million currently payable by Cedar Fair to Apollo if there is a no vote. This is what Carl C. Icahn did in the Lear deal in 2007 and it was upheld there by the Delaware court. Resist this. Apollo’s willingness to raise its bid and its sunk costs have nothing to do with more recompense on the down side. This is particularly true if you do not speak to Q Investments beforehand to see if this is a deal the hedge fund is willing to take. Apollo would raise its bid based on the economics of the deal, not any additional incentive if unit holders vote no. Doing otherwise is simply giving away the unit holders’ money.
Change the scheme, Alter the mood! Electrify the boys and girls if you would be so kind!
Cedar Fair Entertainment Co.'s largest shareholder said today that it would continue to oppose the company's proposed sale to Apollo Global Management no matter the price. The Texas-based hedge fund manager, called Q Investments, wrote a letter to Cedar Fair's board responding to rumors that Apollo is working to secure more than $100 million in additional financing and could increase its current bid for Cedar Fair by $2 per share.
In line with the rumor, the Sandusky amusement park company postponed a meeting this week at which shareholders were to have voted on Apollo's existing $2.4 billion proposal to buy Cedar Fair's assets and pay its debt. Under the deal, investors would receive $11.50 per limited partner unit.
On Monday, DealReporter.com, a Web site geared to investment fund managers, quoted unnamed sources saying they expected the Tuesday meeting to be postponed to reflect an offer of $13.50 per share. It was, and the meeting now is set for April 8. The rumor sent the share price up 10 percent to close at $12.24 on Monday. Today, shares dropped back down to $12 after Q Investments said in a regulatory filing that its opposition to the sale was "not a matter of price." The firm, which owns 18.1 percent of Cedar Fair, said it would not support any transaction that does not allow it to "participate in the long-term value of the business."
Cedar Fair needs the support of two-thirds of shareholders for the acquisition deal to go through. Neuberger Berman, an investment firm that owns 9.6 percent of the company, said last month that it also would vote against the deal.
Q Investments said in its letter that it is afraid delaying the shareholder meeting could affect Cedar Fair's ability to refinance its $1.7 billion outstanding debt by causing it to violate covenants and, potentially, to default.
Cedar Fair spokeswoman Stacy Frole said, "We always appreciate hearing comments and concerns from our unitholders and we will take their letter into consideration as we move through this process."
Change the scheme, Alter the mood! Electrify the boys and girls if you would be so kind!
^$15 does sound like a more fair offer, but I think you are dead on if Apollo has to up the ante they're going to either want to see a quicker return, a larger return or both. And if all things considered were to fall through, one can only imagine what financial situation that would put under the parks (Apollo deeming a park as "underperforming" much quicker than previously before, and an increase in capital improvements as they are no longer deemed as necessary).
Cedar Fair Entertainment Co. and Apollo Global Management agreed to terminate their pending merger deal, Cedar Fair said Tuesday.
The theme park owner, whose holdings include Kings Island amusement park in Mason, will pay Apollo $6.5 million to reimburse it for expenses related to the negotiations, according to a new release.
Cedar Fair signed a definitive merger agreement in December with Apollo, a New York-based private equity firm. But several of Cedar Fair's largest shareholders criticized the deal, saying the $11.50 a share offer was too low.
“The board has heard from Cedar Fair unitholders and it is apparent that the merger transaction does not have the required level of investor support,” said CEO Dick Kinzel in the release.
A special shareholders meeting to vote on the merger, scheduled for Thursday, is canceled, the company said. The annual shareholders meeting will take place June 7.
Cedar Fair’s parks and attractions have suffered from lower attendance as a result of the recession. For its fourth quarter, the company posted a net loss of $26.3 million, or 47 cents per share, compared to a net loss of $56.7 million, or $1.02 per share, in the year-ago quarter. Net revenues fell to $105.6 million from $119.3 million.
Shares of Cedar Fair (NYSE: FUN) opened at $12.20 Tuesday morning.
Cedar Fair, headquartered in Sandusky, is a publicly traded partnership that owns and operates amusement parks, waterparks and hotels in eight states and Ontario.
Read more: Cedar Fair, Apollo terminate merger deal - Business Courier of Cincinnati:
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