Private Equity Firms in Water Fight (APO, WOLF)

In mid-March, private equity giant Apollo Global Management LLC (NYSE: APO) offered to acquire Great Wolf Resorts Inc. (NASDAQ: WOLF), owner of 11 water parks and resorts, for $5/share and the assumption of Great Wolf’s $703 million in debt. Great Wolf also adopted a poison pill to prevent any other entity from acquiring more than 12.5% of the company.

That loosed the shareholder lawsuits and, yesterday, another offer from private equity firm KSL Capital Partners, owners of Squaw Valley, for $6.25/share. The offer also includes assumption of Great Wolf’s debt and boosts Apollo’s offer by 25%.

According to Bloomberg News, Deutsche Bank analysts placed a value on Great Wolf of $3.74-$7.98, hence the lawsuits. Great Wolf’s 2011 cumulative federal tax losses of $143 million are worth about $1.62/share to an acquirer. That’s what the fight is about.

If Great Wolf accepts the KSL offer it will have to pay Apollo a break-up fee of $5.3 million and as much as another $1.7 million for expenses.

Shares of Great Wolf are up nearly 13% this morning, at $6.42, a new 52-week high. Shares closed yesterday at $5.70. The 52-week low is $2.04. Investors clearly expect a bidding war.

Paul Ausick