Question

Please assist me in answering qustion in an essay format. Thank you so much.

Provide meaning of leasing. Parties to a leased. Types of leases. What are the charateristics a lease must poses. Concept of off balance sheet finiancing.

Discuss merger, stautory merge and statutory consolidation, ratinal for mergers. WHy do companies merge. Provid the different type of mergers with examples for each.

Answer 1

Meaning of leasing.

A lease is a contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, also known as the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments for a specified period in exchange. Both the lessee and the lessor face consequences if they fail to uphold the terms of the contract. It is a form of incorporeal right

Parties to a leased

Leases are legal and binding contracts that set forth the terms of rental agreements in real estate and real and personal property. These contracts stipulate the duties of each party to effect and maintain the agreement and are enforceable by each. For example, a residential property lease includes the address of the property, landlord responsibilities, and tenant responsibilities, such as the rent amount, a required security deposit, rent due date, consequences for breach of contract, the duration of the lease, pet policies, and any other essential information.

Not all leases are designed the same, but there are some common features: rent amount, due date, lessee and lessor, etc. The landlord requires the tenant to sign the lease, thereby agreeing to its terms before occupying the property. Leases for commercial properties, on the other hand, are usually negotiated in accordance with the specific lessee and typically run from one to 10 years, with larger tenants often having longer, complex lease agreements. The landlord and tenant should retain a copy of the lease for their records. This is especially helpful when disputes arise.

Types of leases.

Consequences for breaking leases range from mild to damaging, depending on the circumstances under which they are broken. A tenant who breaks a lease without prior negotiation with the landlord faces a civil lawsuit, a derogatory mark on their credit report, or both. As a result of breaking a lease, a tenant may encounter problems renting a new residence, as well as other issues associated with having negative entries on a credit report. Tenants who need to break their leases must often negotiate with their landlords or seek legal counsel. In some cases, finding a new tenant for the property or forfeiting the security deposit inspires landlords to allow tenants to break their leases with no further consequences.

Some leases have early termination clauses that allow tenants to terminate the contracts under a specific set of conditions or when their landlords do not fulfill their contractual obligations. For example, a tenant may be able to terminate a lease if the landlord does not make timely repairs to the property.

Commercial Leases

Tenants who lease commercial properties have a variety of lease types available, all of which are structured to assign more responsibility on the tenant and provide greater up-front profit for the landlord. Some commercial leases require the tenant to pay rent plus the landlord's operational costs, while others require tenants to pay rent plus property taxes and insurance. The four most common types of commercial real estate leases include:

• Single-Net Leases: In this kind of lease, the tenant is responsible for paying property taxes.
• Double-Net Leases: These leases make a tenant responsible for property taxes and insurance.
• Triple-Net Leases: Tenants who sign these leases pay property taxes, insurance, and maintenance costs.
• Gross Leases: Tenants pay rent while the landlord is responsible for other costs.

What are the charateristics a lease must poses.

1. In order to qualify as a finance lease, the following conditions must be fulfilled:
2. the legal ownership of the asset is transferred to the lessee at the end of the lease term,
3. the lessee is given the option to purchase the asset at a price significantly lower than the fair value of the asset,
4. the asset is leased out for the majority of its useful life to the lessee,
5. the asset leased out is of such nature that no one except lessee can use the asset unless any modifications are made,
6. the present value of the minimum lease payment is substantially equal to or greater than the fair value of the leased asset, at the time of lease inspection,
7. if the lessee cancels the lease before maturity, he or she has to bear all the expenses in connection with the cancellation,
8. if the lessee is given the option to continue the lease at a price significantly lower than the market rent for a secondary lease term after the expiry of the initial lease tenure.

Concept of off balance sheet finiancing.

Off-balance sheet (OBS) financing is an accounting practice whereby a company does not include a liability on its balance sheet. It is used to impact a company’s level of debt and liability. The practice has been denigrated by some since it was exposed as a key strategy of the ill-fated energy giant Enron.

Examples

Common forms of off-balance-sheet financing include operating leases and partnerships. Operating leases have been widely used, although accounting rules have been tightened to lessen the use.2

 A company can rent or lease a piece of equipment and then buy the equipment at the end of the lease period for a minimal amount of money, or it can buy the equipment outright.

In both cases, a company will eventually own the equipment or building. If the company chooses an operating lease, the company records only the rental expense for the equipment and does not include the asset on the balance sheet. If the company buys the equipment or building, the company records the asset (the equipment) and the liability (the purchase price). By using the operating lease, the company records only the rental expense, which is significantly less than the entire purchase price and results in a cleaner balance sheet.

Partnerships are another common OBS financing item, and Enron hid its liabilities by creating partnerships.3 When a company engages in a partnership, even if the company has a controlling interest, it does not have to show the partnership’s liabilities on its balance sheet, again, resulting in a cleaner balance sheet.

These two examples of OBS financing arrangements illustrate why companies might use OBS to reduce their liabilities on the balance sheet to seem more appealing to investors. However, the problem that investors encounter when analyzing a company’s financial statements is that many of these OBS financing agreements are not required to be disclosed, or they have partial disclosures. These disclosures do not adequately reflect the company’s total debt. Even more perplexing is that these financing arrangements are allowable under current accounting rules, although some rules govern how each can be used. Because of the lack of full disclosure, investors must determine the worthiness of the reported statements prior to investing by understanding any OBS arrangements.

Discuss merger, statutory merge and statutory consolidation, ratinal for mergers. WHy do companies merge. Provid the different type of mergers with examples for each.

Merger

A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions are commonly done to expand a company’s reach, expand into new segments, or gain market share. All of these are done to increase shareholder value. Often, during a merger, companies have a no-shop clause to prevent purchases or mergers by additional companies.

Statutory Merger

In a statutory merger between two companies (where company A merges with company B), one of the two companies will continue to survive after the transaction has completed. This is a common form of combination in the mergers and acquisitions process.

For example, Company B may lose its independent identity and begin to operate under the name of Company A. The whole operation of a statutory merger takes place in accordance with the provisions of corporate laws of the state. Any contravention whatsoever is considered illegal. The surviving company acquires the assets and liabilities of the merged entity. This causes the merged entity to become defunct.

A merger and an acquisition are similar in nature and the difference between the two is sometimes very subtle.

A merger is the voluntary fusion of two companies on broadly equal terms into one new legal entity. The firms that agree to merge are roughly equal in terms of size, customers, scale of operations, etc. For this reason, the term "merger of equals" is sometimes used. Acquisitions, unlike mergers, or generally not voluntary and involve one company actively purchasing another.

Mergers are most commonly done to gain market share, reduce costs of operations, expand to new territories, unite common products, grow revenues, and increase profits—all of which should benefit the firms' shareholders. After a merger, shares of the new company are distributed to existing shareholders of both original businesses.

Types of Mergers

Conglomerate

This is a merger between two or more companies engaged in unrelated business activities. The firms may operate in different industries or in different geographical regions. A pure conglomerate involves two firms that have nothing in common. A mixed conglomerate, on the other hand, takes place between organizations that, while operating in unrelated business activities, are actually trying to gain product or market extensions through the merger.

Companies with no overlapping factors will only merge if it makes sense from a shareholder wealth perspective, that is, if the companies can create synergy. A conglomerate merger was formed when The Walt Disney Company merged with the American Broadcasting Company (ABC) in 1995.

Congeneric

A congeneric merger is also known as a Product Extension merger. In this type, it is a combining of two or more companies that operate in the same market or sector with overlapping factors, such as technology, marketing, production processes, and research and development (R&D). A product extension merger is achieved when a new product line from one company is added to an existing product line of the other company. When two companies become one under a product extension, they are able to gain access to a larger group of consumers and, thus, a larger market share. An example of a congeneric merger is Citigroup's 1998 union with Travelers Insurance, two companies with complementing products.

Market Extension

This type of merger occurs between companies that sell the same products but compete in different markets. Companies that engage in a market extension merger seek to gain access to a bigger market and, thus, a bigger client base. To extend their markets, Eagle Bancshares and RBC Centura merged in 2002.

Horizontal

A horizontal merger occurs between companies operating in the same industry. The merger is typically part of consolidation between two or more competitors offering the same products or services. Such mergers are common in industries with fewer firms, and the goal is to create a larger business with greater market share and economies of scale since competition among fewer companies tends to be higher. The 1998 merger of Daimler-Benz and Chrysler is considered a horizontal merger.

Vertical

When two companies that produce parts or services for a product merger the union is referred to as a vertical merger. A vertical merger occurs when two companies operating at different levels within the same industry's supply chain combine their operations. Such mergers are done to increase synergies achieved through the cost reduction which results from merging with one or more supply companies. One of the most well-known examples of a vertical merger took place in 2000 when internet provider America Online (AOL) combined with media conglomerate Time Warner.

Example of a Merger

Anheuser-Busch InBev is an example of how mergers work and unite companies together. The company is the result of multiple mergers, consolidation, and market extensions in the beer market. The newly named company, Anheuser-Busch InBev, is the result of the mergers of three large international beverage companies—Interbrew (Belgium), Ambev (Brazil), and Anheuser-Busch (United States).

Ambev merged with Interbrew uniting the number three and five largest brewers in the world. When Ambev and Anheuser-Busch merged, it united the number one and two largest brewers in the world. This example represents both horizontal merger and market extension as it was industry consolidation but also extended the international reach of all the combined company’s brands.

The largest mergers in history have totaled over $100 billion each. In 2000, Vodafone acquired Mannesmann for $181 billion to create the world’s largest mobile telecommunications company. In 2000, AOL and Time Warner vertically merged in a $164 million deal considered one of the biggest flops ever. In 2014, Verizon Communications bought out Vodafone’s 45% stake in Vodafone Wireless for $130 billion.