For 2009, pro forma revenues are projected to be about $20 billion, down considerably from 2008 because of [image-nocss] lower fuel prices (off by 45-50%) and 10% fewer gallons sold, the report said.
The 2009 pro forma operating profits (earnings before depreciation, interest, and taxes) are projected to be more than $700 million. This implies that margins per gallon improved slightly.
Of course, one question is how pro forma operating profits are calculated, especially as it relates to overheads, assumed savings, pricing power and whether Pilot purchased the 50% interest in the ConocoPhillips joint venture that operates more than 100 Flying J locations, the report states.
Debt is projected to be around $2.4 billion, or about 3.4 times operating profits, implying an equity value in excess of $2 billion.
The corporation has a junk bond rating of BB. However, the financing is rated BBB-, an investment-grade rating, most likely because of the security backing the financing.
Issues of concern are the high level of debt, the outlook for the trucking industry, the volatility of fuel prices and the integration of the two companies' operations and different cultures. The opportunity is the successful integration of the two companies and maintaining the low-cost operating structure.
The new merged entity will have increased pricing and purchasing power. If the new entity is able to increase its fuel margins by a penny and increase its non-fuel margins by 1% or 2%, operating profits will increase by more than $100 million, an increase of about 15%, according to the report.
In this transaction, the equity ownership of the Haslam family (52.5%) and CVC Capital Partners (47.5%), an international investment firm, will be diluted by an estimated 20% and by another 7% if the Flying J shareholders exercise their option to purchase $200 million of new equity.
However, this may be a high-grade problem in that the Haslams' smaller percentage will be worth considerably more because of the lower overheads per gallon, greater operating efficiencies, the increase in pricing and purchasing power, and the improved market share.
Flying J filed for Chapter 11 protections on Dec. 22, 2008, after a precipitous drop in oil prices and disruption in the credit markets brought to bear significant short-term pressure on the company's liquidity position.
Ogden, Utah-based Flying J operates more than 240 retail locations, including travel plazas, convenience stores, restaurants, motels and truck service centers in 41 states and six Canadian provinces. It also explores for, refines and transports petroleum products. It is among the 20 largest private companies in America, with 2007 sales exceeding $16 billion. This fully integrated oil company employs approximately 14,700 people in the United States and Canada.
Pilot, which is acquiring Flying J, is the nation's largest retail operator of travel centers, catering to the professional driver and traveling motorist in 41 states with more than 300 retail interstate properties. The company is based in Knoxville, Tennessee and employs 13,000 nationwide.
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