Deltona Lines, INC.
Besson Freight Company had an agreement with Jay Transportation to purchase their assets for 225 million. In order to finance their purchase, Besson asked a shareholder in Besson, Deltona Lines, to invest 110 million. Deltona agrees with the stipulation that the investment be made into a newly formed subsidiary named Del-Bess Inc. Deltona will own 80 percent of Del-Bess voting preferred stock. Also in Deltona’s agreement, Besson would contribute an amount to be determined by Del-Bess for the remaining 20 percent of the voting preferred stock and all non-voting common stock. Then Del-Bess would be the entity to purchase the assets from Jay Transportation and lease them to Besson Freight Company. The remaining 60 million necessary to fund the purchase would be provided by bank financing.
There are four main issues within this case. The first is, is this a temporary control issue for Deltona. Temporary control means that a primary company forms a joint venture with a secondary company that would be a temporary investment to help the primary company to acquire the sought company. Business structure was formed by two or more parties for a specific purpose. Joint ventures usually are limited to one or two projects or purposes. The case is referring to equity-based joint ventures which benefits foreign and/or local private interests, groups of interests, or members of the general public. Benefit of this would be that partners would save money and reduce their risks through capital and resource sharing. One key difference in partnership and joint venture is that the joint venture is based on a single business transaction. An example is that Besson Freight Company wanted to join with Deltona in purchasing Jay Transportation Inc. The second issue is why Deltona would want to avoid consolidation. Deltona would want to avoid consolidation because it doesn’t own any common stock or its investment might be temporary. Due to preferred stock may...
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