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Deal to take Chuck E. Cheese public falls apart

Chuck E. Cheese mascot
The now-defunct deal to take Chuck E. Cheese public valued the company at $1.4 billion.
(Garner Holt Productions)

Chuck E. Cheese isn’t going public after all.

The parent company of CEC Entertainment Inc., which runs Chuck E. Cheese and Peter Piper Pizza, will no longer merge with shell company Leo Holdings Corp. in order to go public on the New York Stock Exchange, according to a statement Monday. Leo’s stock soared.

The now-defunct deal between Chuck E. Cheese owner Queso Holdings Inc., its controlling stockholder Apollo Global Management and so-called blank-check company Leo would have offered an alternative route from an initial public offering. The deal, announced in April, valued the company at about $1.4 billion.

The deal termination is effective immediately, and the companies gave no reason for the change of plans. The deal had been expected to close in the second quarter.

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Spokesmen for Apollo and CEC declined to comment.

Chuck E. Cheese, the restaurant and entertainment center chain acquired by private equity firm Apollo in 2014 in a leveraged buyout, has been spending heavily to reinvent itself as the kind of place millennial parents want to go. That includes remodels costing as much as $575,000 apiece, with plans for 60 more this year, CEC Chief Executive Tom Leverton said this spring.

But even with renovations, there are a lot of rivals in the space. Dave & Buster’s Entertainment Inc., which operates a similar model to Chuck E. Cheese, has seen its shares fall nearly 9% this year as same-store sales come under pressure. And shopping centers looking for tenants are increasingly renting space to in-mall entertainment options such as bouncy castles, indoor playgrounds and escape rooms, adding to the number of kid-friendly spaces competing with the traditional players.

CEC Entertainment’s $760-million first-lien loan slipped to about 98.5 cents on the dollar, according to people familiar with the pricing, down from about 99.5 before news of the merger termination. The company’s notes due 2022 were quoted between 90 and 94 cents on the dollar, down from where they last traded at par, the people said.

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Leo shares jumped 10.6% to $10.20 on Monday, just about making up for the decline in the shares since the Chuck E. Cheese deal was announced in April. Leo is backed by private equity firm Lion Capital.


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