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Post-Combination
After the entities combined, BevAm conducted appraisals of
all the bottling facilities. The facilities were appraised for
approximately $8 million based on their fee-simple (not
lease-fee) value. BevAm’s accounting firm advised BevAm that it
had a potential worthless debt because the collateral securing
the debt was worth less than the debt. In addition, the
accounting firm noted that Properties had not been making full
loan payments to Bottlers (because Bottlers had not been making
full rent payments to Properties), and Properties was therefore
in default.
In addition, BevAm preferred to own the facilities outright
for three reasons. First, BevAm wanted the flexibility to make
certain changes to the facilities without lease restrictions.
Second, BevAm did not want certain members of the management
group owning equity in Properties while others did not. Third,
the rationale for not owning the bottling facilities (i.e.,
keeping Bottlers salable to Coke or Pepsi) no longer existed
after the BevAm transaction. For these reasons, BevAm declared
Properties in default, seized the bottling facilities and some
cash in exchange for releasing Properties from the loan, and
deducted the difference between the value of the assets ($8
million) and the unpaid principal on the Properties loan ($18
million) on its consolidated return for 1995.
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