Lester Electronics Gap Analysis

Abstract

The Lester Electronics scenario outlines two electronic companies that are experiencing issues of merging, joint ventures, acquisitions, partnership and financing. The following literature presents Bernard Lester, CEO and founder of Lester Electronics and John Lin, founder and CEO of Shang-wa Electronics. The Board of Directors for Lester Electronics has made the decision to allow a merger with Shang-wa. In order to complete the merger, the board of directors must consider assessing financing need for wealth maximization. Furthermore, integrating the culture between Lester Electronics and Shang-wa Electronics will be a delicate technique. In creating a dynamic mix, the joint venture can increase productivity and profitability. These facts set the stage then for the following analysis.

Gap Analysis: Lester Electronics

Merger’s, acquisitions, partnerships, and various combinations of company takeovers occur daily in today’s business arena. Understanding the responsibility of social and economic development, wealth, prosperity, and longevity begins with understanding the financing aspect of a business based on the consumer’s need. Bernard Lester, CEO and founder of Lester Electronics is currently entering into an Exclusive Supply Agreement with John Lin, founder and CEO of Shang-wa Electronics. Shang-wa Electronics manufactures capacitors which Lester exclusively has the right to sell the capacitors in the United States for 65 years (University of Phoenix Scenario, 2008). The annual agreement is up for renewal and now facing possible competitors.

The Board of Directors for Lester Electronics has made the decision to allow a merger with Shang-wa. In order to complete the merger, the board of directors must consider assessing financing need for wealth maximization. This paper will compile a gap analysis incorporating the issues/opportunities, stakeholder perspectives, and end-state goals involved in assessing the financial need for wealth maximization, identifying medium-term financing alternatives, and analyzing long-term financing instruments in the merger decision by the board of directors.

Situation Analysis

Issue and Opportunity Identification

Situational analysis involves understanding the issues observed with opportunity to evolve above the issues and help designate distinctive particulars that helped to initial or create the problem. Deciding to how to handle the financial ramifications of a company can be difficult if the problem solving solution method is not used. There are several options that begin to transpire once the Board of Directors of Lester Electronics makes a decision. The issues and opportunity for Lester Electronics and Shang-wa deal with possible merger, joint venture, acquisition, partnership, and financing.

“A merger refers to the absorption of one firm by another. The acquiring firm retains its name and its identity, and it acquires all the assets and liabilities of the acquired firm (Ross, Westerfield, and Jaffe, 2005).” The issue based on the scenario deals with TEC going after Shang-wa and Avral Electronix expressing its interest in Lester Electronics (University of Phoenix Scenario, 2008). John Lin, founder of Shang-wa Electronics is looking forward to spending less time in business and more time with his family. “John has informally suggested to Bernard that they partner to establish a new capacitor manufacturing facility…(University of Phoenix Scenario, 2008). The opportunity would be for the two companies to merge. The merger would provide and enable both to meet the growing demand for the capacitor along with high demand distribution globally. The merger would also provide Shang-wa with the management talent the company needs to prosper.

Wall Street describes cost of capital as the overall percentage cost of the funds used to finance a firm’s assets. Cost of capital is a composition of the individual sources of funds including common stock, debt, and retained earning. “The goal of an individual or business is to limit investment to assets that provide a return that is higher than the cost of the capital that was used to finance those assets” (Scott, 2003). Bernard Lester, CEO of Lester Electronics and John Lin, CEO of Shang-wa are considering joining teams and sharing the financial profit they both foresee. The financial alternatives available are part of the issues faced in making a decision on how to handle the assets and cost of capital. The opportunities available include investments, stock options, call and put options, stock repurchase, and executive stock options to name just a few. “An example would