A Fair Price For Cedar Fair

A Fair Price for Cedar Fair
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Author: Daniel L. Tompkins

Pub. Date: 2022
Product: Sage Business Cases
DOI: https://doi.org/10.4135/9781529780536
Sage Sage Business Cases
© Daniel L. Tompkins 2022
Disciplines: Business & Management, Finance, Corporate Finance, Valuation

Access Date: October 12, 2023
Publishing Company: SAGE Publications: SAGE Business Cases Originals
City: London
Online ISBN: 9781529780536
© 2022 SAGE Publications: SAGE Business Cases Originals All Rights Reserved.

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Abstract
On Wednesday the October 2, 2019, the Six Flags Entertainment Corporation made a nearly USD 4
billion cash and stock offer for its smaller rival, Cedar Fair LP. Within days, Cedar Fair rejected the of-
fer as being inadequate, in part because of its unique structure as a master limited partnership. Many
analysts expected another, higher offer for Cedar Fair from Six Flags. Even if another offer was not
made, the question remains, what is Cedar Fair’s intrinsic value? Using year-end data, this case asks
students to calculate the total enterprise value, and value of the partnership shares. The case provides
an opportunity to discuss the unique structure of a publicly traded partnership.
Case
Learning Objectives
By the end of the case, students should be able to:
• discuss an organizational form not often seen: publicly traded partnerships;

• calculate the total enterprise value of Cedar Fair;

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• value Cedar Fair’s units.
Introduction
Reuters reported on the October 2, 2019, that Six Flags Entertainment Corporation made a cash and stock
offer to acquire Cedar Fair (Roumeliotis, 2019). After the news became public, trading in the partnership units
increased the market value of Cedar Fair to USD 3.6 billion. Two days later, Cedar Fair’s board of directors
announced that they were rejecting the offer because the offer was too low (Glaser, 2019). Management had
stated that the company is not looking to be sold and given a past attempt to take the company private at a
price unit holders thought was too low, some analysts believed it would take a sizeable premium over the cur-
rent market value to acquire Cedar Fair (Glaser, 2019). Among the reasons the price was considered too low
was it did not reflect the federal tax advantages the master limited partnership (MLP) structure provides for
Cedar Fair (Niles, 2019b). Though some questioned why Six Flags was trying to purchase Cedar Fair (Niles,
2019a), others speculated that Cedar Fair may try to acquire its larger rival (Munarriz, 2020).
After the rejection of the bid, the price of the Cedar Fair partnership units declined in value (Glaser, 2019)
and Six Flags did not make another offer (Munarriz, 2020). While the offer had been rejected, Jim Cramer
pointed out that the offer price was higher than the market price, indicating that Cedar Fair’s value was higher
than the current selling price (Clifford, 2019). Thus, the question remains, what is the value for Cedar Fair’s
partnership units?
History of Cedar Fair
The second oldest, continuously operating, amusement park in the United States, Cedar Point, the flagship
park for Cedar Fair, opened for business in 1870 (Heil, 2017). The park is located on a peninsula on Lake
Erie, half-way between Cleveland and Toledo, Ohio and is also close to the Detroit, Michigan metropolis. In
1978 the company acquired Valley Fair, which opened in 1976, in Shakopee, Minnesota. A limited partner-
ship, Cedar Fair LP was formed in 1983 with the purpose of acquiring Cedar Point, Inc. The partnership’s
name Cedar Fair is a combination of the names of the two parks. The partnership became publicly traded in
1987 (Cedar Fair, 1994).

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Beginning with the purchase of Dorney Park in 1992, Cedar Fair has grown to 11 amusement parks and two
water parks (see Table 1). Except for the 2006 acquisition of Paramount Parks (Kings Island, Kings Dominion,
Carowinds, Great America, and Canada’s Wonderland) the growth has been through small purchases of one
or two parks at a time.
Table 1. Park Locations
Name Location
California’s Great Adventure Santa Clara, California
Canada’s Wonderland Vaughan, Ontario
Carowinds Charlotte, North Carolina
Cedar Point Sandusky, Ohio
Dorney Park & Wildwater Kingdom Allentown, Pennsylvania
Kings Dominion Doswell, Virginia
Kings Island Kings Mills, Ohio
Knotts Berry Farm Buena Park, California
Michigan’s Adventure Muskegon, Michigan
Valley Fair Shakopee. Minnesota
Worlds of Fun Oceans of Fun Kansas City, Missouri
Schlitterbahn Water Park & Resort New Braunfels, Texas

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Schlitterbahn Water Park Galveston, Texas
Source: Cedar Fair.com
According to a USA Today’s readers’ poll, three of the top ten amusement parks in the United States are
parks owned by Cedar Fair (USA Today, 2020). Each park owned by Cedar Fair is considered to be unique,
unlike the highly homogenized parks controlled by Six Flags (Niles, 2020b).
Publicly Traded Partnerships
Cedar Fair’s organizational form is a publicly traded partnership (PTP). Similar to a MLP, PTPs have one
or more individuals or corporations act as general partner. The general partner manages the business and
has unlimited liability. The other partners, the limited partners, do not have any role in running the business,
with their liability limited to the amount of their investment (Tarver, 2020). A PTP is an entity whose partner-
ship units trade on an exchange or an over-the-counter security market. A major difference between common
stock and PTP units is that the cash distribution for the PTP is not considered a dividend but a reduction of
basis. Thus, the distribution is not considered taxable until the unitholder sells the units. To be tax exempt at
the federal level, 90% of the entity’s earnings must be distributed to unit holders. Internal Revenue Service
regulations were changed in 1987, limiting PTP status to real estate and energy related ventures (Upcounsel,
n.d.). However, as a pre-existing PTP, Cedar Fair could elect to remain as a PTP and has chosen to do so
Cedar Fair Financials
Data 1 provides a graph of Cedar Fair’s revenue from 1995 to the present. Notice the steady increase in rev-
enue, especially since the 2008/2009 recession, thanks to both acquisitions and increased attendance at the
company’s amusement and water parks. Data 2 illustrates the growth of its earnings before interest and taxes
(EBIT) for the same time period.
Data 1. Cedar Fair Total Revenue (1995–2019)

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Data 2. Cedar Fair Earning Before Interest and Taxes (1995–2019)
Table 2 provides three years of income statements for Cedar Fair. Though the MLP form has tax advantages,
the company still has a tax expense. As Cedar Fair reports in its 10k (2019) filing:
Our legal entity structure includes both partnerships and corporate subsidiaries. We are subject to
publicly traded partnership tax (“PTP tax”) on certain partnership level gross income (net revenues
less cost of food, merchandise, and games revenues), state and local income taxes on partnership
income, U.S. federal state and local income taxes on income from our corporate subsidiaries and
foreign income taxes on our foreign subsidiary. As such, the total provision (benefit) for taxes in-
cludes amounts for the PTP gross income tax and federal, state, local and foreign income taxes.
Table 2. Income Statement (USD)
2019 2018 2017
Revenue 1,474.90 1,348.50 1,322.00
Cost of goods sold 768.50 699.10 668.90
Gross profit 706.40 649.40 653.10
Selling general & administration 215.10 193.30 193.80
Depreciation & amortization 170.50 155.50 153.20

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Earnings before interest & taxes 320.80 300.60 306.10
Net interest (116.90) (93.10) (85.60)
Foreign exchange gains (losses) 21.10 (36.30) 29.10
Other non-operating income 1.50 1.30 1.00
Earnings before taxes 226.50 172.50 250.60
Unusual items (11.50) (11.20) (33.90)
Earnings before taxes after unusual items 215.00 161.30 216.70
Taxes (42.80) (34.70) 1.10
Net income 172.20 126.60 217.80
Weighted diluted shares 56.9 56.9 56.8
Earnings per share 3.03 2.22 3.83
Distribution per share 3.71 3.60 3.46
Source: Compiled by author from public information
Table 3 provides the last three years’ balance sheets for the firm. One item to note is that because of the
acquisition of the Schlitterbahn Water Parks, net property plant and equipment grew substantially.
Data 3. Cedar Fair LP Current Debt

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Table 3. Balance Sheet (USD)
2019 2018 2017
Assets
Cash 182.5 105.9 167.0
Accounts receivable 63.1 51.5 37.7
Inventory 32.9 30.8 29.7
Other current assets 15.6 12.1 12.6
Total current assets 294.1 200.3 247.0
Gross property, plant, and equipment 3,711.0 3,326.8 3,200.0
Accumulated depreciation (1,855.0) (1,727.3) (1,614.2)
Net property, plant, and equipment 1,856.0 1,599.5 1,585.8
Goodwill 359.7 178.7 183.8
Other intangibles 59.9 36.4 38.1
Other long-term assets 11.5 9.4 9.5

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Total intangibles 431.0 224.5 231.4
Total assets 2,581 2,024 2,064
Current liabilities
Accounts payable 29.3 23.3 24.6
Accruals 89.4 69.1 70.8
Current portion long-term debt 12.6 5.6
Current portion leases 2.2
Deferred taxes 39.2 29.6 44.0
Unearned income 151.4 107.1 86.1
Total current liabilities 324.1 234.7 225.5
Long-term debt 2,164.0 1,664.3 1,669.2
Leases 10.6
Deferred tax liability 82.0 81.7 74.8
Other long-term liabilities 10.3 11.1 11.7
Total liabilities 2,591.0 1,991.8 1,981.2

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Common stock (25.0) 5.8 81.6
Retained earnings
Comprehensive income 15.0 26.6 1.4
Total equity (10.0) 32.4 83.0
Total liabilities & equity 2,581 2,024 2,064
Other financial information necessary for valuing the firm is given in table 4. Revenue, operating income, and
net income are all expected to increase at the same cumulative annual growth rate (CAGR). The equity beta
is a median of beta estimates published by several analysts.
Table 4. Other Financial Information
Price 12/31/2019 USD 55.67
Beta 2.23
Expected growth 1%
Distribution per share USD 3.88
Rf 1.69%
Market risk premium 5.20%
Bond rating B-

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Rd 5.37%
B corporate bond rate 7.29%
Average annual capital spending USD 211.68
Source: Compiled by author from public information
Tables 5 and 6 provide the ownership structure of Cedar Fair. Note that with 54% of the partnership units held
by institutions, the median investor is a financial institution. Insiders hold only a small fraction of the units.
Table 5. Ownership Structure
Group Percentage held
Insiders 1.56
Institutions 54.09
Other 44.35
Table 6. Ten Largest Holders
Holder Percentage
Morgan Stanley 7.84
Goldman Sachs Group, Inc. 6.68

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Burgundy Asset Management Ltd. 3.65
Waratah Capital Advisors Ltd. 3.63
Neuberger Berman Group, LLC 3.41
Citigroup Inc. 2.87
ING Groep N.V. 2.59
Barclays PLC 1.85
Thrivent Financial For Lutherans 1.40
Arrowstreet Capital, Limited Partnership 1.10
Source: finance.yahoo.com
Data 4. Cedar Fair LP (FUN) Adjusted Stock Daily Open, 1998–October 2, 2019
About the Amusement Park Industry
Amusement parks are grouped into three segments: mechanical, water, and other. Most parks, especially in
North America, charge a flat admission fee which allows access to all the rides. Some also charge a fee for
each ride. In addition to admission to the park, sources of revenue include food and souvenirs. Technavio
(2020) reports that globally amusement parks will grow by a CAGR of nearly 7% during the 2020–2025 fore-
cast period. Grandview Research (2018) forecasts a 5.8% CAGR for the 2018–2025 period. Major explana-

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tions of the global growth in amusement parks include a growing middle class, increasing urbanization, and
international tourism. Besides new roller coasters, amusement parks expect to have major capital expendi-
tures thanks to advances in technology. Such technology allows for more dynamic pricing as well as the use
of augmented and virtual reality in rides and attractions (Linchpin, 2021).
Competitor information is provided in Table 7.
Table 7. Competitor Information
Share
Company price 21/ Number of Revenues Net income P/E P/EBIT-
EBITDA (USD) EPS
name 31/19 shares (USD) (USD) ratio DA
(USD)
Comcast
49.17 4,610,000,000 108,942,000,000 13,057,000,000 30,226,000,000 2.83 22.05 7.50
Corp.
Disney (Walt)
144.63 1,666,000,000 69,570,000,000 11,054,000,000 19,185,000,000 6.64 23.05 12.56
Co. (The)
MGM Resorts
33.27 527,645,000 12,899,672,000 2,049,146,000 4,981,053,000 3.88 24.05 3.52
International
Ryman Hos-
pitality Prop- 86.66 51,975,000 1,604,566,000 145,794,000 479,020,000 2.81 25.05 9.40
erties Inc.
Six Flags En-

tertainment 29.89 84,968,000 1,487,583,000 179,065,000 540,887,000 2.11 26.05 4.70
Corp.
SeaWorld En-
tertainment 31.71 81,044,000 1,398,244,000 89,476,000 369,382,000 1.10 28.05 6.96
Inc.
Parks! Ameri- 0.20 74,791,000 6,184,254 1,096,538 2,027,649 0.01 29.05 7.38

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ca Inc.
EBITDA: earnings before interest, taxes, depreciation, and amortization; EPS: earnings per share; P/E: price
to earnings.
All of the tables in the case are provided in Excel 1.
Discussion Questions
1. For investors, how does the publicly traded partnership organizational form affect valuation?
2. What is the total enterprise value of Cedar Fair?
3. Calculate the value of Cedar Fair’s units using the dividend growth model and free cash flow to equity
model.
4. Use the P/E and Price/EBITDA models to value the firm.
5. Explain what you think is a fair price for Cedar Fair.
6. Do you think that Cedar Fair’s management was justified in rejecting the offer?
References
Cedar Fair. (1994). Form 10-K, Filing Date 23 March 1994. http://edgar.secdatabase.com/1050/
81153294000011/filing-main.htm
Cedar Fair . (2019) Form 10-K, Quarter 4. https://s2.q4cdn.com/170666959/files/doc_financials/2019/q4/

00919570-4363-43a3-b373-8426d6ccefd9.pdf
Clifford, T. (2019, October 7). Jim Cramer doubles down on Cedar Fair after Six Flags bid rejected. CNBC.
https://www.cnbc.com/2019/10/07/jim-cramer-doubles-down-on-cedar-fair-after-six-flags-bid-rejected.html
Glaser, S. (2019, October 4). Cedar Fair, parent company of Cedar Point, rejects $4 billion offer from
Six Flags. Reuters, Cleveland.com. https://www.cleveland.com/business/2019/10/cedar-fair-rejects-4-billion-

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offer-from-six-flags-reuters-reports.html
Grandview Research. (2018, November). Amusement Parks Market Size, Share & Trends Analysis Report by
Age, by Rides (Water, Mechanical), by Revenue Source (Ticket, Merchandise, Food & Beverage, Hotels), and
Segment Forecasts, 2018–2025. Grandview Research. https://www.grandviewresearch.com/industry-analy-
sis/amusement-parks-market
Heil, M. (2017, July 12). 7 oldest amusement parks in the US. Conde Nast Traveler. https://www.cntravel-
er.com/gallery/7-oldest-amusement-parks-in-the-us
Linchpin. (2021, February 13). Trends in the theme park industry outlook for 2021. Linchpin. https://linchpin-
seo.com/trends-in-the-theme-park-industry/
Munarriz, R. (2020, February 20). Will Cedar Fair buy Six Flags? The Motley Fool. https://www.fool.com/in-
vesting/2020/02/20/will-cedar-fair-buy-six-flags.aspx
Niles, R. (2019a, October 2). Is Six Flags really trying to buy Cedar Fair? Theme Park Insider.
https://www.themeparkinsider.com/flume/201910/7040/
Niles, R. (2019b, October 2). Cedar Fair tells Six Flags ‘No thanks’ to proposed deal. Theme Park Insider.
https://www.themeparkinsider.com/flume/201910/7045/
Roumeliotis, G. (2019, October 2). Exclusive: Six Flags in bid to merge with Cedar Fair. Reuters.
https://www.reuters.com/article/us-cedar-fair-m-a-sixflags-exclusive/exclusive-six-flags-in-bid-to-acquire-
cedar-fair-sources-idUSKBN1WH1ZA
Tarver, E. (2020, April 29). Limited Partnership (LP). Investopedia. https://www.investopedia.com/terms/l/lim-

itedpartnership.asp
Technavio. (2020, November 9). Global Amusement Park Market Size 2020–2024 | Industry Overview,
Shares, Growing Demand, Explosive Factors of Revenue, Region and Forecast Report by Technavio. Busi-
nesswire, https://www.businesswire.com/news/home/20201108005016/en/Global-Amusement-Park-Market-
Size-2020-2024-Industry-Overview-Shares-Growing-Demand-Explosive-Factors-of-Revenue-Region-and-
Forecast-Report-by-Technavio
Upcounsel. (n.d.). Publicly traded partnerships: Everything you need to know. https://www.upcounsel.com/
publicly-traded-partnership

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USA Today. (2020). Best Amusement Park 2020. 10 Best. Retrieved November 22, 2020 from
https://www.10best.com/awards/travel/best-amusement-park-2020/
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A Fair Price for Cedar Fair

Author: Daniel L. Tompkins

Disciplines: Business & Management, Finance, Corporate Finance, Valuation