TravelCenters of America announced Wednesday, May 30, that it has acquired the operating businesses of Petro Stopping Centers. Simultaneously with this acquisition, 40 Petro travel centers were leased from Hospitality Properties Trust. Prior to this acquisition, Petro was a privately owned company headquartered in El Paso, Texas, which was majority-owned by a Texas family and minority owned by affiliates of Exxon Mobil and AB Volvo of Sweden.
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 about $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 that 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 about $70 million.
Petro reported financial results in its Form 10-K for the year ended Dec. 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.
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.
“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,” says Thomas M. O’Brien, president and chief executive officer of Westlake, Ohio-based TA. “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,” O’Brien says. “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.”
The combined company will be run by the existing TA management team. All Petro field operations and related staff – about 97 percent of Petro’s 5,500 employees – are expected to remain with the combined company. The nature and extent of the combined operations that may remain at Petro’s El Paso headquarters will be determined during a transition period which is expected to last several months.
“We are very pleased to announce this latest step in the evolution of Petro Stopping Centers,” says James A. Cardwell Sr., founder of Petro Stopping Centers. “As part of a larger and stronger company, Petro may provide new opportunities for franchise owners and greater opportunities for career growth for the vast majority of Petro employees.”
Volvo Trucks North America, which had held its 28.68 percent interest in Petro Stopping Centers Holdings since 1999, received $46.3 million upon the closing of the transaction. The company characterized the sale as a testament to the growing strength of its dealer network.
“Our dealers have truly embraced Volvo’s commitment to world-class service, and over the past several years, together we have made significant investments to dramatically expand and enhance our network,” says Peter Karlsten, president and CEO of Volvo Trucks North America. “As a result of these efforts, we are now in a position to fully support our customers’ parts and service requirements through our dealer network.
“We wish everyone involved in this transaction future success,” Karlsten says. “And we look forward to continuing working with our dealers in providing world-class customer support and making Volvo number one in customer satisfaction.”