A flurry of trading sent Great Wolf Resorts stock up more than 16 percent by midday Thursday after the Madison indoor waterpark company disclosed Wednesday night that another bidder has upped the ante, setting the stage for a possible bidding war.
Shares reached $6.65, up 95 cents from Wednesday's close of $5.70, after the news that KSL Capital Partners, a private equity firm in Denver and New York, is proposing $6.25 a share to buy Great Wolf in an unsolicited bid. That's 32 percent higher than the $5 a share bid Great Wolf had accepted from Apollo Global Management, a New York investment firm.
The stock closed Thursday at $6.58, up 15.4 percent from Wednesday's close. Volume was 2.02 million shares, up from a three-month average of 485,000 shares.
Great Wolf's board of directors "will consider and evaluate" KSL's proposal, the company said.
Meanwhile, Apollo and Great Wolf released a statement Thursday morning saying they are extending Apollo's cash tender offer for 10 days, from the original April 10 deadline to April 20.
By the end of the day Wednesday, just under 1.4 million shares of common stock had been "validly tendered and not validly withdrawn," the statement said. That represents 4.3 percent of the 32.9 million shares outstanding of Great Wolf common stock as of Feb. 23.
Great Wolf and Apollo also are again extending a "change of control offer" to holders of some of Great Wolf's debt, with the new deadline also on April 20. By Wednesday evening, "no notes have been properly tendered" in that offer, the companies said.
With the new offer, Great Wolf "is now set to face a private equity bidding war as the buyout funds circle the company's waterpark resorts as an investment," a news report said on TheStreet.com.
Two analyst notes Thursday indicated KSL's offer would be in line with their expectations.
Jeffrey Thomison, vice president of Hilliard Lyons, calculated the value of the proposed offer at about $745 million, including $210 million to shareholders and the assumption of $535 million in debt. That's up from Apollo's total $703 million deal.
"We do not know if Apollo will counter with a higher offer, but believe an offer in the $6.25 to $7 range is justifiable," Thomison wrote, suggesting that stockholders continue to "hold existing positions and let the situation play out."
Raymond James analysts William Crow and Paul Puryear wrote that even at $6.25 a share, Great Wolf stock would be valued lower than many other lodging companies. But they added, "In our view, (that) reflects the company's higher leverage, higher cost of capital, low brand value and lower growth prospects."
Several shareholder lawsuits have been filed in courts in Madison and in Delaware since Great Wolf announced that it would accept Apollo's offer.
In U.S. District Court in Madison, a request for a temporary restraining order to stop the Apollo deal was withdrawn on Thursday. Attorneys said the new, higher offer from KSL may make the case a moot issue. In Delaware Chancery Court, a hearing was delayed until April 18 on a motion for a preliminary injunction for the same reason.
Several institutional investors and analysts have said they thought the $5 offer was low.
On Tuesday, PWK Partners Atlas Funds, Chicago, appealed to the board for the second time to cancel the agreement. "We strongly believe the intrinsic value of WOLF is in excess of $10 per share today, and could potentially be worth significantly more in the years ahead," the letter said.
Under terms of the Apollo deal, Great Wolf could not solicit other bids. A poison pill provision also barred purchase of more than 12.5 percent of the company's shares by another buyer.
If KSL's bid is accepted, Apollo would get about $7 million in breakup fees.