Apollo deal to take Chuck E. Cheese owner public falls apart

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. Leo’s shares soared the most since April 2018

The now-defunct deal between CEC owner Queso Holdings Inc., its controlling stockholder Apollo Global Management LLC and so-called blank-check company Leo would have offered an alternative route from an initial public offering. The deal, first 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.

Spokesmen for Apollo and CEC declined to comment.

Chuck E. Cheese, 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’s Chief Executive Officer 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 9% this year as same-store sales come under pressure even as the wider equities market gains. Shopping centers looking for out-of-the-box tenants are also increasingly renting space to in-mall entertainment options like 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 a point to around 98.5 cents on the dollar, according to people familiar with the pricing, down from about 99.5 before news of the terminated merger. 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.

Leo shares climbed 10% to $10.18 at 11:35 a.m. in New York, just about making up for the decline in the shares since the Chuck E. Cheese deal was announced in April. Leo Holdings is backed by private equity firm Lion Capital.