Should Disney Buy Cedar Fair?
http://www.fool.com/investing/general/2007/07/11/should-disney-buy-cedar-fair.aspx Rick Aristotle Munarriz
July 11, 2007
If there's a suitor to be found for Cedar Fair (NYSE: FUN), it's likely to come in the form of a private-equity firm. They're the ones with the deep patience and deeper pockets to finance a $3.5 billion to $4 billion reclamation project.
No, Cedar Fair isn't even officially on the market, but the company's silence after Monday's New York Post story speaks volumes. If it isn't quietly shopping itself or jumping to squash the published reports, it may just have to deal with gentlemen callers lining up outside its Lake Erie porch.
I'll tell you who I would love to see come out on top. You're going to think I'm nuttier than carny-cranked peanut brittle, but I believe that Disney (NYSE: DIS) would be the ideal buyer. I'll give you my reasons, but first let me go over why Cedar Fair's current valuation is likely to scare away many of those suitors who are fumbling for breath mints outside.
What your units are worth
We don't know who -- if anyone -- will step up to make Cedar Fair an offer it can't refuse. It's not likely to be for much more than today's going price. Let history and EBITDA be your guides in tempering that enthusiasm.
Cedar Fair has nearly $1.9 billion in debt. It commands a market cap of $1.6 billion. The company is projecting $320 million to $340 million in EBITDA. So wolfing down the regional amusement park operator at today's prices -- a $3.5 billion outlay of capital -- would imply a purchase at 10.3 to 10.9 times EBITDA.
That's certainly not an investment for those who get queasy, as Cedar Point's Top Thrill Dragster coaster peaks at 420 feet up in the sky. We can see how some of the more recent deals have been priced for more perspective.
Cedar Fair paid 9.1 times EBITDA for the Paramount Parks chain last year.
Six Flags sold a few of its smaller parks in a $312 million transaction earlier this year that valued the properties at 10.4 times last year's EBITDA.
Cedar Fair seems to be priced in that ballpark, right? No, not exactly. The parks that have been sold have been working on depressed operating margins. Cedar Fair runs a much tighter ship, making it harder for new owners to squeeze more out of the incoming greenery.
We're also talking about a company that would dread going out without much of a premium. With the units trading near the $30 mark, a buyout at $35 would translate into a buyout as rich as 11.9 times the low end of this year's EBITDA target. Let's not even get started on the 12.7 EBITDA multiple that a $40 takeout would require. It just ain't gonna happen, my friend.
Private equity isn't that fond of heights. Firms like attractive prices on companies they feel will fetch more down the road. Tack on the somewhat incredulous claim in the Post's story -- that Cedar Fair's top brass is requesting to keep running the company -- and it's easy to imagine most offers coming in for less than the current price.
Pay $3.5 billion only to be told what to do by a company that has been stagnant in recent years after its ill-advised shopping spree? It just isn't going to happen.
It's at this point where Cedar Fair's best hope may be for someone to cue up the "Mickey Mouse" March song.
M-I-Cedar Fair
Disney doesn't do regional amusement parks. It favors gargantuan year-round destinations. Cedar Fair and Paramount Parks combine for 12 amusement parks and a half-dozen waterparks that draw nearly 25 million guests annually. In Florida alone, Disney's four gated attractions were visited by 45 million visitors last year.
Why would Disney play small ball, especially if geographical expansion into smaller markets can dilute its brand and dry up demand for its existing tourist-hungry magnets?
It's an important question, one to which I have several answers.
Disney's got its eye on playing small ball already. Back in February, Disney hosted an investor conference in Florida where it presented concept art of outreach attractions in new markets. From urban entertainment centers to themed resorts to indoor waterparks, Disney is thinking about expansion on a smaller scale. Cedar Fair would give it established canvases to work its magic on several dispersed markets.
Music-driven entertainment is back at Disney. High School Musical is hot. Hannah Montana has the top-selling CD in the country this past week. Cedar Fair's properties would serve as great promotional platforms and pave obvious trails for limited summer tours.
Cedar Fair is pretty dry on character-powered intellectual capital, so it has to pay to license characters like the Peanuts gang or the stars of Viacom's (NYSE: VIA) Nickelodeon. Disney's deep bench would shave licensing costs and boost merchandising margins in a way that no private equity firm could improve upon. It's not all Mickey and Winnie the Pooh, here. Muppets, Pirates of the Caribbean, and Nightmare Before Christmas are Disney franchises that appeal to older audiences, too.
One of Cedar Fair's best moves was building resorts on the Cedar Point peninsula. It's a model that Disney has perfected, and Disney has the financial fortitude to expand Cedar Fair's other parks into resort properties.
Cedar Fair's Castaway Bay lodge with an indoor waterpark is a proven vehicle if Disney wants to take on Great Wolf Resorts (Nasdaq: WOLF) in that niche.
Giving regional amusement parks a more family friendly spin is something that Six Flags (NYSE: SIX) is presently doing. If Six Flags is too successful, it may attract families that would have been headed for one of Disney's parks. Taking a similar approach within Cedar Fair may force Six Flags to try a different tact to stand out.
Disney will still be able to resell any of the properties that don't fit into its master plan. If Knott's Berry Farm is too close for Disneyland comfort, it should be an easy park to sell. Paramount's Canadian park supposedly was a hotly contested property when Cedar Fair swallowed the chain whole. In short, Disney can always cash out of specific properties, or even the entire waterpark chain, if it wanted to.
Cedar Fair has been a technological laggard, whereas Disney is on the forefront of digital in-park photography, line reservation systems, and creating interactive websites. The upgrades would be lucrative and easy to implement.
Will Disney bite? It's awfully tempting, yet unlikely to happen. However, Cedar Fair's rich valuation is going to make it a hard sell outside of a company like Disney that would have a clear path to improving margins and drumming up more revenue.
If the breezy porch is empty of penny-pinching private equity firms, there's no harm in getting hit on by a mouse.
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Ich musste den Bericht wirklich dreimal lesen, um überhaupt erahnen zu können, was das überhaupt bedeutet. Da hat mich dann die zweite Nachricht zum Thema nicht mehr ganz so sehr aufgekratzt - obwohl sie meine eigene Vermutung mehr oder weniger schürt. Ich setzt mal in bold was ich meine:
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SanduskyRegister.com Front Article
Is Cedar Fair entertaining idea of selling?
By JANET NGUYEN
Wednesday, July 11, 2007 6:49 AM EDT
SANDUSKY
Cedar Fair Entertainment Co. is reaching out to private equity firms that may be interested in a buyout, according to a report Monday by the New York Post.
Citing two unidentified sources, the Post reported that Cedar Fair has contacted New York-based Bear Stearns Co. Inc. to conduct a "small, highly targeted auction" for the company.
But some industry analysts believe otherwise.
"I think the leverage firm found them," said Ned Hill, vice president of economic development at Cleveland State University. "There is a lot of money in the leveraged buyout pool right now."
The New York newspaper reported that the investment banking firm has contacted several potential buyers including Apollo Management, Thomas H. Lee Partners and an unidentified European suitor (!!!!).
Scott Hamann, an equity research and senior leisure analyst for Keybank Capital Markets in Cleveland, said he believes private equity firms are just one of several options the company has contemplated, but he is skeptical about the potential transaction.
"I'm not sold on the fact they're going to do this," Hamann said. "I think they are just looking at a whole bunch of options to see what would be the best thing for them to do."
Hamann said taking a company private is an easy way to cut costs. Private companies don't have shareholders, which would mean the company would save on paying dividends every year, investing that money elsewhere.
"That's why it's attractive for some people," Hamann said.
Cedar Fair nearly doubled in size after it acquired five Paramount Parks -- including Kings Island -- from CBS Corp. last summer for $1.24 billion. The company now owns and operates 12 amusement parks, five water parks, an indoor waterpark and four hotel facilities across the nation and Canada. Cedar Fair also owns Star Trek: The Experience, an interactive adventure located in Las Vegas.
But with the acquisition also came debt. Acquiring the parks last year left Cedar Fair with almost $2 billion in debt.
The Post reported that the company's price tag could be about $3.3 billion.
"We have a policy not to comment on rumors or speculation," said Stacy Frole, director of investor relations for Cedar Fair about the possible sale of the company.
Cedar Fair Chief Operating Officer Jack Falfas and CEO and President Dick Kinzel were out of town Tuesday and unavailable for comment.
Hill said he believes two scenarios could play out with Cedar Fair.
"A private equity firm invests more in (Cedar Point) to increase the effective season ... building on what Cedar Fair has already been doing with the waterparks," Hill speculated. "The other alternative is taking Cedar Fair's expertise to grow the business by getting seasonality out of it or expanding it into warmer areas and faster-growing areas that would have longer seasons."
Hamann said even if something is in the works, he doesn't expect the company to do anything soon.
"I think the company is going to focus on the big, summer operating season for the next couple of months," he said. "I think they are going to focus on running the parks and trying to generate as much revenue as possible. After that, they might pick this up and take a look at it."
Hamann, who has spoken to Kinzel in the past, said he knows that Kinzel is proud of what the company has done for its shareholders for the last 30 years.
"He's proud people are living off this distribution," Hamann said. "I don't think (Cedar Fair is) in dire straits. I think they're looking at different angles."
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Tja, ich glaube, der ganz dicke Hammer steht uns noch ins Haus. Unter anderem auch in Europa, und leider wohl auch in Deutschland. Wer sich ein wenig auskennt, weiss was ich meine.
Gruß
Marcel
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