Shares of Cedar Fair (FUN -0.11%), which owns and operates regional amusement parks, rose as much as 22% this week, according to data from S&P Global Market Intelligence. That dramatic increase had little to do with the master limited partnership (MLP), which last reported any news on Jan. 19. And that was to announce that it would release earnings on Feb. 16. Well, that's not quite true, Cedar Fair did comment on something peer Seaworld Entertainment (SEAS -0.84%) did on Feb. 1.
Basically, Seaworld Entertainment made an offer to buy Cedar Fair, which resulted in Cedar Fair putting out a news release that it was looking at the offer. Cedar Fair did not mention anything about the specifics of the offer, however, so there's really just rumors to go on here as far as price. Bloomberg, citing people with "knowledge of the matter," stated that it is an all-cash deal valued at $3.4 billion, or about $60 per unit. Given that news, it's not shocking that Cedar Fair's units rose up toward that price level. There's still a slight discount here, but that's normal for an acquisition since there's always a chance that a deal doesn't pan out.
This merger could make a great deal of sense for Seaworld Entertainment, which would add Cedar Fair's 13 parks to its portfolio of 12 parks. Although Cedar Fair's parks are largely seasonal, it also owns the Knott's Berry Farm park in California, which is open year-round. Basically, Seaworld appears to be trying to take advantage of the industry dislocation caused by the coronavirus pandemic to pick up Cedar Fair at a relatively low cost. The MLP was actually the subject of a $70 per unit offer prior to the pandemic.
That said, the Seaworld offer benefits from being all cash; the previous takeover attempt from a different competitor included stock and was rebuffed. But times are clearly different now, thanks to COVID-19. An all-cash deal, despite being at a lower price, might be enticing enough to get accepted. Note that Cedar Fair isn't paying distributions despite the fact that MLPs are basically designed to pass income onto unitholders. This cash offer, then, could be seen as a way to reward unitholders for sticking out a rough patch that, frankly, isn't quite over yet.
There's no way to tell what will happen from here with Seaworld's acquisition attempt. If you bought Cedar Fair during the 2020 bear market and are now sitting on material gains, it might make sense to book your profits and move on. There's not that much more upside potential here unless a bidding war emerges. If you have owned Cedar Fair longer than that, basically since before the pandemic began, you might still be sitting on losses. If that's the case, the reward of waiting to see what happens might be worth the risk. That said, if a deal is not agreed to, Cedar Fair's units are likely to fall from the current price point.