Six Flags An Aggressive Buy As Cedar Fun Deal Very Unlikely, Says Wells Fargo

While no specific comment was made regarding the Reuters article of Six Flags Entertainment (SIX) making a bid, Cedar Fair (FUN) management stated that the company is not looking to be sold, Wells Fargo analyst Timothy Conder told investors last night in a research note.

Cedar Fair management conducted scheduled one-on-one meetings earlier in the week and has scheduled meetings next week, but did not participate in a conference yesterday based on counsel's advice, adds the analyst. The company has previously chosen not to convert to a C-Corp as this would involve either trigging a substantial tax bill for unitholders, or the tax bill being borne by the new C-Corp in the form of higher go forward tax rates, "neither of which is acceptable," says Conder.

The analyst believes this same dilemma would face Six Flags in the event of an acquisition. For his part, Conder has yet to find any type of multiple stock class structures that would work and avoid the ability to defer a transactional tax bill to either unitholders or the surviving C-Corp. In addition, Six Flags launched a repricing of its $798M term loan due 2026 on September 30, Conder points out. It would be "strange that the company would do this ahead of a major acquisition bid," he says. As such, the analyst reiterates his view that a Six Flags acquisition of Cedar Fair is "highly unlikely." He also believes the recent pullback in Six Flags shares is "overdone and unwarranted."

Candor would be an "aggressive" of Six Flags ahead of what he expects will be "solid" Q3 results from both companies. And if the recent buyout talk subsides, the analyst sees only a "modest" $2-$3 per share give back in Cedar Fun. He keeps an Outperform rating on both stocks.

Disclosure: None.

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