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Prior to this acquisition, Petro was a privately owned company headquartered in El Paso, TX, which was majority owned by a Texas family and minority owned by affiliates of Exxon Mobil (NYSE: XOM) and AB Volvo of Sweden (American Depository Receipts, NASDAQ: VOLV). Some of Petro’s debt securities are registered with the Securities and Exchange Commission and additional information about Petro may be obtained from its public filings at the SEC.
Petro operates and franchises 69 travel centers along the U.S. Interstate Highway System in 33 states. Petro owns and operates 44 travel centers, franchises 24 travel centers and operates one travel center for a joint venture that is partially owned by Petro. The travel centers operated by Petro are similar to, but generally newer and larger than, the 164 travel centers TA currently operates and franchises.
Simultaneously with TA’s acquisition of Petro, HPT acquired 40 Petro travel centers and leased them to TA under a long term lease. In addition to its purchase price of approximately $630 million, HPT has agreed to pay certain costs of this transaction, principally the costs associated with defeasance and prepayment of debt secured by the Petro properties being acquired by HPT.
Substantially all of the other assets of Petro were acquired by TA, including two owned centers, one partially owned center and two leased centers operated by Petro, Petro’s franchisee business which provides services to 24 centers operated by Petro franchisees, related businesses, land sites acquired for future development of new travel centers, inventory and other working capital. TA’s purchase price for these assets, including closing costs and the cost of certain Petro employee retention payments, is approximately $70 million.
Petro reported financial results in its Form 10-K for the year ended December 31, 2006, filed with the SEC. In that filing, Petro reported total revenue, net of fuel taxes, of $1.8 billion and, based upon its SEC reports, Petro’s earnings before interest, taxes, depreciation and amortization, or EBITDA (including Petro’s share of joint venture EBITDA) was $65.2 million. Included as costs in this EBITDA was $21 million of centralized selling, general and administrative expenses. A reconciliation of Petro’s reported net income to the EBITDA amount is provided at the end of this release.
The historical EBITDA realized by Petro in 2006 does not include full year earnings from travel centers that Petro began to operate in 2006 or early 2007. TA expects that the stabilized EBITDA from these new centers plus reduced costs and other operating efficiencies from the combined TA and Petro businesses may total about $14 million per year; these amounts are expected to begin to be realized about six months after TA’s acquisition of Petro is completed and to be fully realized in the second year after this acquisition.
Thomas M. O’Brien, President and CEO of TA, made the following statement when this transaction was announced:
“When TA was spun out of Hospitality Properties Trust as a separate public company in January 2007, TA stated that it expected it would find financially accretive opportunities to acquire additional properties in the travel center industry. We are delighted to be able to acquire such high quality properties as those operated by Petro.
“The Petro brands and the TA brands will be operated separately after the transaction closes, and we expect to seek to expand both brands through acquisitions, development and franchising. Each of the TA and Petro operations excel at certain aspects of the travel centers business and I expect the combined company will benefit by utilizing the best practices of each company.”
TA funded this transaction using cash on hand.