- 7 - previously worked. G&K was interested in expanding its real estate holdings by buying the facilities. G&K and Bottlers drafted a letter of intent formalizing G&K’s intent to purchase the bottling facilities for approximately $18 million. G&K had identified a life insurance company in Davenport, Iowa, as a potential source of financing but needed time to work out the details. While G&K was obtaining the necessary financing, the management group worked on avoiding the rent escalators in the CPA7 lease and approached CPA7 regarding a sale. Initially CPA7 requested $22 million for the bottling facilities, but Bottlers and CPA7 ultimately agreed on a $17.8 million price. To lock in the $17.8 million price tag and avoid further rent escalators, the management group found a short-term, interim solution to give G&K the time it needed to obtain the financing. The management group decided to create a third-party company to own the assets temporarily until G&K’s financing came through. Neither Bottlers nor CPA7 appraised the underlying facilities during their negotiations. Instead, the lease payments drove the price, which was based on the present value of the future stream of payments. Bottlers recognized that this price included a premium over fair market value because of the unfavorable lease terms. The management group knew it needed toPage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011