Shares of master limited partnership Cedar Fair LP (FUN -0.16%), which owns and operates amusement parks, rose as much as 12.5% in morning trading today. The big news was a rumor, but it came with a $3.4 billion price tag.
In 2020, when the coronavirus pandemic first started to spread across the globe, amusement parks were shunned by investors and consumers alike. However, as the world has started to learn to live with the illness, it appears that SeaWorld Entertainment (SEAS 0.96%) thinks the future will be bright for these in-person, group-oriented entertainment options. That analysis comes from the rumor that the company has offered $60 per unit for peer Cedar Fair. Cedar Fair owns 13 largely seasonal, ride-focused amusement parks and would complement SeaWorld's similarly sized collection of parks. Cedar Fair has stated that it is reviewing the acquisition offer, but did not disclose the offer's details.
It is not surprising to see Cedar Fair's unit price jump on this offer, which is what typically happens in these situations. There remains a discount between the current price and the rumored offer price, which is also normal given that a deal hasn't been agreed on yet. What's most interesting, however, is that SeaWorld's stock price is up on the news, too. It's only a couple of percentage points, but normally the shares of the proposed acquirer fall since the acquiring company has to come up with the cash for the deal it's proposed. It clearly seems that investors like the amusement park consolidation story that SeaWorld's offer plays into.
Most investors really shouldn't invest based on merger rumors. In this case, the deal is rumored to be all cash, so there's only just so much additional upside to be had from here if a deal is agreed to. That said, current Cedar Fair unitholders have to make a judgment call: Take the quick gain from today, or wait for Cedar Fair to announce if it is willing to be taken over, and make a little bit more money. If you owned the stock prior to the pandemic bear market, you might still be underwater, and waiting could make sense. If you bought it during the pandemic downturn, this could be a good time to take your profits and congratulate yourself on a timely trade.