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Tickers in this Article: FUN, DIS, WOLF, CCL, RCL
Private equity firm Apollo Global Management and amusement park limited partnership Cedar Fair, LP (NYSE:FUN) have decided to end their proposed merger. Apollo had offered to buy Cedar Fair for $2.4 billion that included debt refinancing. The $11.50 per share price offer was considered too low by shareholders, including its large institutional shareholders.The stock price rose on the news of the termination of the deal.

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A Deal Doomed From The Outset?
When Apollo and Cedar Fair signed the agreement for the proposed sale last December, shareholder displeasure soon became vocal. The company had already announced suspension of its once-generous distribution (dividend), which angered its income-oriented shareholder base. The stock had historically traded far above the $11.50 buyout price proposed by Apollo, so there was intense disagreement as to valuation. When Q Investments and Neuberger Berman, who owned 17% and 9.7% percent of Cedar Fair stock, came out against the deal, it was effectively killed.

Cedar Fair's Woes
Cedar Fair was put into play by the purchase of the Paramount portfolio of amusement parks and the debt taken on to do so, of which approximately $1.6 billion remains - in addition to the harsh recession. Market cap for the stock shrunk to roughly half a billion dollars amidst attendance difficulties. What fueled shareholder anger against the deal was that, despite the downtrend through this recession, they maintained that Cedar Fair's long term operational prospects were promising. Walt Disney (NYSE:DIS) amusement parks were also suffering, so this was an important context for Cedar Fair's woes. While Disney has its bulwark media properties to buttress this, more exposed operators such as Great Wolf Resorts (Nasdaq:WOLF) are also pressured by losses. The recent upward trend by cruise lines Carnival Cruise (NYSE:CCL) and Royal Caribbean (NYSE:RCL) show the potential for a healthy rebound in travel, leisure and recreation though. So, despite its woes, many Cedar Fair shareholders felt that the long-term viability of the company should put any potential sale price substantially above what was offered. On short, they considered the $11.50 price a lowball one.

Where Does Cedar Fair Go From Here?
Clearly the individual retail investors want the company to remain independent, or at least get a significantly higher price in a sale. The idea that the income investors were going to accept a $11.50 share price after also losing their dividend distribution seemed ill-conceived. Whether the institutional holders, Q Investments and Neuberger Berman, have a preference for Cedar Fair remaining independent or potentially simply selling at a higher price is unclear. For now, Cedar Fair will have to re-work its capital structure, meaning its debt, and they've put in place a poison pill provision. The ill-considered agreement by the Cedar Fair board to a deal that seems like it was questionable in the first place will cost the company a $6.5 million walk away fee to be paid to Apollo - a stinging lesson in a buyout gone bad.

Cedar Fair's Value
Individual retail investors are not often accorded the respect of being able to judge complicated financial transactions, yet it seems in the Cedar Fair-Apollo deal that their judgment may be borne out. After all, Apollo must have thought Cedar Fair was worth much more or they wouldn't have gone after it. Now the task is ahead for Cedar Fair to return to more profitable operations. After all, this is what they historically have done best. (Learn more about leveraged buyouts in Understanding Leveraged Buyouts)

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