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Equity firm to buy Knott's Berry Farm's parent

Apollo Global Management agrees to acquire Cedar Fair. The $2.4-billion deal total includes refinancing of Cedar Fair's debt, Apollo says.

December 18, 2009|By Hugo Martín and Tom Petruno
  • Members of the Amalgamated Order of Real Bearded Santas visit Knott's Berry Farm in Buena Park in 2008.
Members of the Amalgamated Order of Real Bearded Santas visit Knott's… (Knott's Berry Farm )

The $2.4-billion buyout of Knott's Berry Farm's parent company by a private equity firm may be a sign of confidence in the future of theme parks, analysts said Thursday.

Apollo Global Management agreed late Wednesday to acquire Cedar Fair, the Sandusky, Ohio, company that owns Knott's in Buena Park and 10 other amusement parks, seven water parks and five hotels in the U.S. and Canada.

Knott's takeover: An article in Friday's Business section about Apollo Global Management's buyout of Knott's Berry Farm's parent, Cedar Fair, said the California Public Employees' Retirement System had paid $46 million in fees to Alfred Villalobos, a placement agent working for Apollo. It was Apollo that paid the fees. —

The deal, including the assumption of debt, follows a poor summer for Cedar Fair -- the recession clipped park attendance. The company also said in a Nov. 3 earnings report that attendance had continued to fall in October.

Still, theme park consultants and others who follow the industry say the deal relieves Cedar Fair of debt pressure brought on when the company bought the Paramount Parks chain in 2006.

"It's good news that they no longer have this debt hanging over them," said Robert Niles, editor of a website on theme park news and a former Disney theme park host.

Dennis Speigel, president of industry consulting firm International Theme Park Services Inc., said that by investing in Cedar Fair, Apollo Global Management has shown it believes theme parks will be profitable in the future.

"It says that [the equity] group feels we have bottomed out as an industry," he said.

Although theme parks nationwide will probably continue to offer discounts next year to attract guests, Speigel believes the discounts will be smaller as the economy slowly rebounds.

The deal is the second time this fall that a private equity firm has ventured into the theme park business. In October, Blackstone Group agreed to buy the entertainment business of Anheuser-Busch InBev, which includes the SeaWorld attractions in San Diego, San Antonio and Orlando, Fla., as well as the Busch Gardens parks in Tampa, Fla., and Williamsburg, Va.

Besides Knott's Berry Farm, Cedar Fair's 11 amusement parks include Cedar Point in Ohio, Kings Dominion in Virginia and Great America in Santa Clara, Calif.

New York-based Apollo, led by Leon Black, said it would pay $11.50 a share for Cedar Fair. The stock on Thursday soared $2.12, or 23%, to close at $11.20. Shares had plunged as low as $6.10 last month after Cedar Fair said Nov. 3 that revenue for the first nine months of the year fell nearly 8% from a year earlier, to $811 million.

The buyout price is about one-third of what Cedar Fair was worth at its peak share price of $35.71 in 2004.

The stock will cost Apollo about $635 million. Apollo said the $2.4-billion deal total includes refinancing of the company's debt.

Cedar Fair's heavy debt load has been a source of worry for the company's equity investors. Crushing debt pushed one of its rivals, Six Flags Inc., to file for bankruptcy protection in June.

Cedar Fair Chief Executive Dick Kinzel said that after considering a range of alternatives, the company decided that the Apollo deal was in the best interest of shareholders.

JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Barclays Capital, UBS Investment Bank and KeyBanc Capital Markets agreed to provide nearly $2 billion in financing commitments for the buyout, Apollo said.

The deal is another sign that the corporate takeover business is reviving as lenders open the credit spigot to fund buyout activity. On Monday, Exxon Mobil Corp. agreed to pay $31 billion for natural gas producer XTO Energy Inc.

Apollo's reputation has taken a hit this year amid the scandal over so-called placement agents in the pension fund business.

The California Public Employees' Retirement System disclosed in October that it had paid about $46 million in fees to Alfred Villalobos, a former CalPERS board member who now works as an intermediary helping Apollo and other funds market their investment products to institutional investors such as CalPERS.

The pension fund subsequently said it was reviewing its relationship with Apollo, citing deep losses incurred on CalPERS investments made with the buyout firm.

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