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Apollo Ups Ante in Bidding War for Great Wolf Resorts

Sachin Shah a strategist at Tullett Prebon, said on Thursday that to raise KSL's $7.25 a share offer, Apollo would need to increase its bid by at least 25 cents. Meanwhile, the current offer price is close to Shah's $8 to $8.60 a share fair value for Great Wolf Resorts. In a March research note, he said that Great Wolf Resorts' core operations, its net operating losses a tax benefit for a profitable acquirer , and its majority equity stake in Creative Kingdoms, are worth up to $8.60 a share.

Shares of Great Wolf Resorts were nearly 8% higher in early trading to $8, adding to over 150% year-to-date gains as a result of the bidding war.

Some large shareholders feel that the Wisconsin-based owner of 11 water park themed resorts may be worth far more than Apollo and KSL's offers. PWK Partners, a 4.2% shareholder, said in an April 3 letter that the company is worth $10 per share. The investment firm also noted that it didn't believe "selling the company to a private equity buyer is the best avenue to maximize shareholder value in the current environment."

Some of Great Wolf Resorts value comes in its ownership of some of its 11 resorts, which featuring indoor water parks and family-styled suite lodging and restaurants, in spite of the company's loss-making ways. The hotels chain is also an attractive target for a private equity buyer. Amid a sea of losses, the company has managed to generate roughly $20 million in free cash flow in recent years -- a key for private equity investors.

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In 2011, Great Wolf Resorts saw its annual loss narrow by roughly 50% to $25 million on rising sales and overall operating profits. Still, much of Great Wolf Resorts financial stress results from a debt burden that's over $500 million. While the company turned an operating profit in 2011, its near $50 million in annual interest expense drove overall losses.

Great Wolf Resorts' bidding drama also coincides with some new high stakes corporate battles, including the takeover campaign launched by European drugs giant GlaxoSmithKline (GSK) for Human Genome Sciences (HGSI), a failed hostile Roche bid for Illumina (ILMN) and Carl Icahn's first 2012 activist win.

For more on deal trends, see 5 deal ready stocks loved by hedge funds portfolios. See five stocks that could be trampled by a share overhang, for more on private equity backed IPO's.

Deutsche Bank will continue to advise Great Wolf Resorts, while Morgan Stanley, UBS, and Nomura have acted as financial advisers to Apollo's bid.

-- Written by Antoine Gara in New York

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