CEC Entertainment sold to Apollo Global Management

March 2014  |  DEALFRONT  |  PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

March 2014 Issue

March 2014 Issue


Private equity powerhouse Apollo Global Management LLC announced in January that it had agreed to acquire CEC Entertainment Inc for $1.3bn in cash, including the assumption of debt. CEC, based in Irving, Texas, is believed to have debts of around $370m. 

The definitive agreement signed between the two groups will see an affiliate of Apollo acquire CEC paying $54 per share. The price represents a premium of approximately 25 percent over CEC’s closing share price on 7 January 2014, the last day of trading prior to the emergence of media speculation regarding Apollo’s possible acquisition of the company. The price also represents a premium of around 36 percent over the 12-month volume weighted average share price for the period ending 7 January 2014. The transaction was unanimously approved by CEC’s board of directors who had recommended that all CEC shareholders tender their shares in the offer. 

New York based Apollo opted to launch its takeover attempt for CEC as a tender offer rather than a standard merger as the tender offer will enable it to complete the acquisition of CEC promptly. As per a standard merger, there has to be a shareholder vote conducted and a proxy statement prepared and circulated to shareholders. There must also be a shareholder meeting, a process which typically takes between two to three months. The tender offer will see Apollo purchase the shares of CEC stockholders directly and in a timely fashion. 

CEC owns and franchises 577 Chuck. E. Cheese restaurants across 47 states in the US. The Chuck E. Cheese brand also operates in another 10 countries and territories. The company owns 522 of those locations across North America. “We are excited about this transaction with Apollo, as it recognizes the value of CEC’s global brand, strong cash flows and growth prospects while providing our shareholders with an immediate and substantial premium,” said Michael Magusiak, president and chief executive of CEC. “Apollo brings significant industry expertise and financial resources, and we look forward to working with them to further grow CEC domestically and internationally.” 

In January Apollo announced that it had completed fundraising efforts for the firm’s eighth fund. Apollo raised $18.4bn, $17.5bn of which was provided by external investors. $880m of that fund was raised from within Apollo including a number of employees of the firm, and other affiliated investors. “This transaction with CEC gives us the opportunity to partner with the proven leader in family dining and entertainment,” said Scott Ross, partner at Apollo. “Across the US, and increasingly around the world, the Chuck. E. Cheese brand represents quality, safe and fun family entertainment.” 

In late January the Young Law Firm, a national shareholder litigation firm, announced that it was investigating potential claims concerning the proposed acquisition of CEC by Apollo. The investigation concerns whether the proposed buyout price represents fair value for the sale of the company and whether the interests of CEC’s public shareholders have been adequately protected during the sale process. 

According to the joint statement announcing the sale to Apollo, Goldman Sachs and law firm Weil, Gotshal & Manges advised CEC. Deutsche Bank, Morgan Stanley and UBS all served as financial advisers to Apollo, and, together with Credit Suisse, also provided debt financing commitments to the transaction. Wachtell, Lipton, Rosen & Katz and Paul, Weiss, Rifkind, Wharton & Garrison served as Apollo’s legal advisers. 

Unusually, despite the transaction being unanimously approved by CEC’s board of directors, the deal also includes a ‘poison pill’ provision. A poison pill stance is designed to prevent any unapproved investor from acquiring 10 percent or more of CEC. In this instance, the poison pill would make it extremely unlikely that an activist would take a large stake and seek to block the deal or attempt to push Apollo for a higher price.

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BY

Richard Summerfield


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