Annual report pursuant to Section 13 and 15(d)

Acquisitions (Tables)

v3.20.4
Acquisitions (Tables)
 12 Months Ended
Dec. 31, 2020
Business Combinations [Abstract]  
Schedule of Preliminary Allocation of Purchase Price
The allocation of the purchase price is summarized as follows:
Amount
Total consideration (a)
$ 1,951 
Cash withheld to repay La Quinta Holdings Inc.’s estimated tax liability (b)
(240)
Cash withheld to pay employee-related equity award liabilities (8)
Net cash consideration 1,703 
Cash escrowed from CorePoint (c)
$ 985 
Payment of La Quinta Holdings Inc.’s long‑term debt (c)
(985)
—  — 
Cash utilized to repay La Quinta Holdings Inc.’s long‑term debt (d)
(715)
Net cash consideration (to shareholders of La Quinta Holdings Inc.) $ 988 
Total current assets (e)
$ 67 
Property and equipment 17 
Trademarks (f)
710 
Franchise agreements (f)
260 
Management contracts (f)
119 
Other assets 5 
Total assets acquired $ 1,178 
Total current liabilities (e)
$ 89 
Deferred income taxes (g)
254 
Long‑term debt repaid at acquisition (c)
715 
Assumed tax liability (b)
240 
Other liabilities 11 
Total liabilities assumed 1,309 
Net identifiable liabilities acquired (131)
Goodwill (h)
1,119 
Total consideration transferred $ 988 
______________________
(a)    Includes additional consideration of $1 million related to a net debt adjustment paid to CorePoint during the third quarter of 2018.
(b)    Reflects a portion of the purchase price in which $195 million and $35 million was paid in 2019 and 2018, respectively, related to the tax liability assumed in the La Quinta acquisition. Additionally, $10 million was paid directly to CorePoint in 2019 which was reported in other, net within financing activities in the Consolidated and Combined Statements of Cash Flows.
(c)    As a result of a change in control provision within La Quinta’s long-term indebtedness, CorePoint deposited $985 million into an escrow account which was utilized to repay a portion of La Quinta Holdings Inc.’s existing indebtedness.
(d)    Reflects the portion of La Quinta Holdings Inc.’s long-term debt that was required to be paid by the Company upon a change in control.
(e)    The fair values of total current assets and total current liabilities are estimated to approximate their current carrying values.
(f)    The identifiable intangible assets consist of trademarks with an indefinite life, franchise agreements which have a weighted average life of 25 years and management agreements which have a weighted average life of 15 years. The fair valuation was performed with the assistance of a third‑party valuation firm, which included the consideration of various valuation techniques that the Company deems appropriate for the measurement of fair value of the assets acquired and liabilities assumed.
The valuations of the franchise agreements and management agreements are based on a discounted cash flow method utilizing forecasted cash flows from La Quinta’s existing franchise agreements and CorePoint franchise agreements and management agreements (the “CorePoint agreements”) that are estimated to be generated over the estimated terms of such contracts. The expected cash flows projections were based on the terms of the agreements, and adjusted for inflation and the costs and expenses required to generate the revenues under such agreements.
The significant assumptions that were utilized for La Quinta’s franchise agreements were: (i) forecasted gross room revenues, (ii) a franchise fee of 4.5%, tax affected, and (iii) a discount rate of 9.5%.
The significant assumptions that were utilized for the CorePoint agreements were: (i) forecasted gross room revenues, (ii) franchise and management fee rates of 5.0% each, which were tax affected, and (iii) a discount rate of 9.5% and 10.5% for CorePoint franchise and management agreements, respectively.
(g)    The deferred tax liability primarily results from the fair value adjustments for the identifiable intangible assets. This estimate of deferred tax liabilities was determined based on the book and tax basis differences attributable to the identifiable intangible assets acquired at a combined federal and state effective tax rate.
(h)    The goodwill recognized in the La Quinta acquisition is not expected to be deductible for income tax purposes.