'Hardvard Case: TA Answers\r'

'1. This is a good insure for HPT’s distrisolelyeholders and they did it for some(prenominal) reasons: First of all, TA’s operating business was spun glum for federal income tax considerations. To maintain its spatial relation as an REIT for tax purpose, a galactic majority of HPT’s gross income had to be generated from true estate rents or owe interest. To meet these requirements, HPT was forced to divest itself of TA’s operating business.\r\nSecond, the management of HPT believed that the renting income from TA’s sites would significantly transfigure its revenue stream by providing moving picture to a historically recession-resistant intentness that did not follow the cyclical patterns of the hotel industry. Finally, the spin-off impart unlock the private determine of TA and the luckholder of HPT pass on receive shares of TA. As a result, this will create care for for shareholders of HPT. 2. The HPT habit the spin off for severa l reasons: Carve-out is partial spin-off, only unlocking partial hidden value.\r\nMost of the time, an equity carve-out ultimately results in the parent partnership fully revolve off the subsidiary. For HPT, carve-out can’t uphold them to vacate tax. Sell-off means selling assets, divisions, and subsidiaries to some other corporation. For HPT, since they expect just acquired TA, they have no reason to sell it unless in that respect is a bigger profit than the sum of learning cost and the spin-off benefit. Issuing introduce shopworn â€no legal legal separation or transfer of assets from HPT to TA First, effect tracking stock will slim down the shareholders’ ownership.\r\nInstead, new spun off stock has no equity claim on the assets or gold flows of the old parent company (HTP). Second, for tax consideration, issuing tracking stock won’t help HPT to avoid tax. Third, overvalued market moods. if the investors are over-optimistic about the industry of TA, HPT can take advantage of it and have higher capital gain. But there is no evidence that investors have such(prenominal) mood about the TA industry. 3. do of shares outstanding = 8628425(Exhibit 4), hurt per share=29 Equity value = shares outstanding * price= $250224325.\r\nThere is no debt for new TA, cash equals $213205000 (Exhibit 7) crown remove obligation = $105252000 (Exhibit 7). EV=Equity value+ debt (short+ long)-cash (and equivalents)+capital lease obligation= $142271325= $142. 27 (MM) The HPT gives $213 million to TA in order to cover up real estate properties and help TA to run its business without increasing leverage ratio. Also, it can help create expose balance sheet, thus facilitating publicly art and decreasing remissness risk by and orotund. 4. What is the fair value of one share of naked-TA? 1) Multiple valuation method We use Pantry (PTRY) as comparable fast from three comparable firms. Because Pantry has a similar business model as New-TA, it lea ses around of its stores for operation instead of owning them (it owns 368 stores, but leases 1125 stores). Nevertheless, the other two firms own most of their stores, so they are excluded from our selection. Thus, EV/EBITDA=7. 1(data for 2007) Post-acquisition wear and tear $18029000(Exhibit 9) Post-acquisition EBIT $14936000(Exhibit 9)\r\nEBITDA = $32965000. (Exhibit 9) Based on our multiple valuations utilise 7. 1 times of EBITDA multiple, the fair value of New-TA is 234. 05(MM) Equity Value= EV- debt + cash †Capital lease obligation= $341. 99(MM) Price per share= $341. 99mm/8628425= $39. 64 2) DCF method (see Excel) 5. After the spin-off, New-TA has no debt outstanding so that it is easy to pay in the future operation. On overhaul of that, the company’s leverage is low, which decreases the default risk of the company by and large.\r\nHPT retains its real estate and gives its operating business to the New TA, hoping that the New TA could focus on the its strong p oint and develop more aggressively in the market. Besides, there will generate some tax respectable due to the spin-off transaction, which increases net income of the company. In addition, gross margins of New-TA are incredibly high, back up the company to grow at a faster speed and generate large amount of gross profits.\r\n'