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Lively Enterprises

Dr. Smith had joined CHN Inc just weeks earlier, and now faced his first major project: Should
CHN consider the purchase of Livel !nterprises, and if so, at what price" #urchase of Livel$s
world%class casino%hotels and other &am'lin& properties could enhance CHN$s position in the
&amin& industr.
CHN was a pu'licall traded compan with a lon& histor in the hotel 'usiness. CHN owned,
mana&ed or franchised hotels (under the 'rand name Carter) across &lo'e. *he Carter name
was reco&ni+ed internationall as snonmous with ,ualit hotels. CHN-s worldwide holdin&s
comprised ./0 hotels, of which .01 were franchised. 2f these, CHN$s casino%hotels had ..,111
rooms (304 occupanc rate) and its nonmana&in& properties had 5.,111 rooms (5.4
occupanc). Casino%hotels were &enerall lar&e facilities &eneratin& revenues from 'oth room
rentals and &am'lin&. 6t one point, CHN considered spinnin& off its &am'lin& se&ment, 'ut new
mana&ement was reconsiderin&. CHN$s recent share price of 7 .11 seemed to reflect the
market confidence in the new mana&ement of the compan.
Lively Enterprises
Livel !nterprises owned and operated three world%class casino%hotel resorts. !8hi'its provide
financial information on Livel. 2ne ,uestion was whether market plaers like Livel could
compete effectivel without the aid of powerful reservation sstems used ' lar&er hotel chains
like Hilton and CHN.
Deal Considerations
!8hi'it contains Dr. Smith$s initial projections for Livel as a stand%alone. *he five ear revenue
&rowth seemed attaina'le for Livel, since the industr was &rowin& ' .04.Dr. Smith had
forecast this revenue &rowth 'ased on capacit increase, an increase in occupanc rates, and
price increases that mirrored &eneral inflation. His rou&h &uess was that, ' the end of five
ears, the first two sources of &rowth would 'e e8hausted without su'stantial investment. If
CHN 'ou&ht the 'usiness, Dr. Smith thou&ht mar&ins mi&ht 'e improved ' takin& advanta&e of
CHN$s e8istin& e8pertise. He felt relativel sure that S96 could 'e reduced ' .4 of sales,
compared with Livel$s historical performance, and 'elieved that savin& could reach :4 of
sales. *he last source of sner& was sales &rowth, which he 'elieved could 'e accelerated to
.:4 for the ne8t five ears ' a&&ressive use of CHN$s reservation sstem.
;hile Livel was an attractive tar&et, no other suitor had appeared. ;as this lack of activit
tellin& him that Livel properties were over priced" ;hat if contemplated mar&in improvements
fell short of e8pectations" Livel had traded for more than 7 <1 a share a few ears a&o, 'efore
it e8perienced down ears that led to the current 7.0 price. Could Livel re'ound to dou'le its
current share price"