Bloomberg News

Apollo Bid for Great Wolf Resorts Challenged by Shareholders

March 15, 2012

Great Wolf Resorts Inc. (WOLF), the water- park operator, was sued by investors who said a proposed $703 million sale to private-equity firm Apollo Global Management LLC (APO) undervalues the company.

The deal, which would pay shareholders $5 a share in cash and assume outstanding debt, is inadequate, given that the company’s own financial adviser, Deutsche Bank Securities Inc., valued the company as high as $7.98 a share, David Raul, custodian for Pinchus E. RaulS Utma, said in a complaint filed yesterday in Delaware Chancery Court (1400L).

The proposed transaction “was the result of an unfair and flawed sales process in which Apollo was favored over other interested parties,” Raul said in the complaint.

Great Wolf, which runs 11 family entertainment parks throughout North America, said March 13 that the sale would maximize shareholder value and help refine and promote the brand. The deal represented a 19.3 percent premium over Madison, Wisconsin-based Great Wolf’s closing stock price on March 12, the company said in a statement.

In a separate lawsuit, shareholder Scott Ferguson accused directors of breaching their fiduciary duty by enacting a shareholder rights plan, or poison pill, to make it more difficult for an acquirer other than New York-based Apollo to buy Great Wolf.

Termination Fee

The proposed deal includes a no-solicitation provision and a $5.3 million termination fee, Ferguson said in his complaint, filed today in the chancery court. Both Ferguson and Raul seek to represent all Great Wolf shareholders in an effort to get the court to bar the deal.

“We believe these lawsuits are baseless and without merit,” Great Wolf said in a statement.

The Apollo deal was announced after a comprehensive review of alternatives conducted over a period of more than nine months by a special committee of independent directors, according to the statement. Eleven companies signed confidentiality agreements and three, including Apollo, presented final proposals, Great Wolf said.

“Apollo’s final offer represented the highest fully financed bid,” the company said.

Great Wolf had indications of interest from two other bidders of $5 and $5.05 a share as of Dec. 20, Raul said in his complaint.

“It is likely that these indications of interest could have, with due diligence, resulted in a higher offer price than that currently being offered by Apollo,” Raul said in the complaint.

Neuberger Berman Group LLC, Great Wolf’s fifth-biggest shareholder, said March 13 that the company may be worth $8 to $9 a share.

Net Operating Losses

Great Wolf is worth more than Deutsche Bank (DBK)’s valuation if the company’s net operating losses are taken into account, said Sachin Shah, a Jersey City, New Jersey-based special situations and merger arbitrage strategist at Tullett Prebon Plc.

The company has about $7 a share in net operating losses that an acquirer could use as a future tax benefit, Shah said today in a phone interview.

“The hidden gem is in these NOLs,” Shah said. “Any acquirer will be able to use some of them. The valuation is a little more compelling than $5.”

Great Wolf rose 15 cents, or 2.8 percent, to $5.44 in trading in New York. The shares had gained 82 percent this year before today.

The cases are Ferguson v. Great Wolf Resorts Inc., CA7329; Raul v. Schaefer, CA7328, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Sophia Pearson in Philadelphia at

To contact the editor responsible for this story: Michael Hytha at

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