Lester Electronics

Running head: PROBLEM SOLUTION: LESTER ELECTRONICS INC.

Problem Solution: Lester Electronics Inc.

Marymartha Bogdanov

University of Phoenix

Problem Solution: Lester Electronics Inc.

Corporate annual reports represent the single most visible external financial reporting to investors and the financial community regarding a public company's annual performance and future prospects (Ainsworth et al., 2001). Financial management is a vital part of managing operations (Finance For The…, 2006). Members of senior management are ultimately responsible for the ethical decisions they make and publicize regarding an organization’s financial gains.

The basic elements of financial planning comprise of the investment opportunities the firm elects to take advantage of, the amount of debt the firm chooses to employ, and the amount of cash the firm thinks is necessary and appropriate to pay shareholders. These are the financial policies that the firm must decide upon for its growth and profitability (Ross et al., 2005).

Lester Electronics is faced with the challenge that their long-time partner, Shang-wa Electronics, will be acquired and dissolution of the agreement between the two firms will result. Nearly half of Lester’s revenue over the next few years would be lost if this situation were to evolve. Lester must now find an alternative to their dependence on Shang-wa, and consider moving into the global market independently.

Describe the Situation

Issue and Opportunity Identification

Lester has several issues and opportunities that must be realized before implementing the firm’s ideal solution. Lester’s long-time distribution partner, Shang-wa Electronics, has received a hostile takeover bid from Transnational Electronics Corporation (TEC). Shang-wa has nothing in place to prevent acquisition by TEC. If Shang-wa and Lester can establish a stronger organizational partnership, this will make it more difficult for TEC to exercise its petition to claim Shang-wa.

Avral Electronics, S.A. has also proposed a bid to acquire Lester Electronics. By acquiring Lester, Avral will finally be able to distribute electronics in the United States. Lester could face a 43% loss of revenue over the next five years if Shang-wa is acquired. Their best option may be to sell-out to Avral.

In the current situation, Lester may not have a chance for survival if they are unable to strengthen or at least maintain a relationship with Shang-wa. If Shang-wa is taken over by TEC, Lester could lose a sizable percentage of revenues. Unfortunately, Shang-wa CEO, John Lin, is ready to retire and a corporate take over would allow him to leave the company without having to train a replacement.

Table 1

Issues and Opportunities Identification

Issues

Opportunities

Reference to Specific

Course Concept

Lester Electronics does not know whether to acquire Shang-wa or get acquired by a bigger company. Is Lester Electronics in a position acquire Shang-wa and if so, by what method. Lester Electronics has the opportunity to become bigger and grow into a global company while maintaining its relationship with Shang-wa. Financial leverage is related to the extent to which a firm relies on debt financing rather than equity. (Ross, Westerfield, & Jaffe, 2005). If Lester Electronics decides to acquire Shang-wa, what do they use debt or equity to do so?

Shang-wa has received a hostile takeover bid from Transnational Electronics. Shang-wa has nothing in place to prevent TEC from taking them over. If Shang-wa and LEI establish an organizational partnership, this will make it more difficult for TEC to takeover Shang-wa. Financial planning formulates the method by which financial goals are to be achieved. A financial plan is a statement of what is to be done in a future time. (Ross, Westerfield, & Jaffe, 2005). [Chapter 3]

Forming an alliance with Shang-wa before TEC can initiate takeover actions will provide LEI the opportunity to ensure stock growth, and will help create a barrier that will hinder competition from other companies.

Rumors of a take over of Shang-wa by TEC may affect LEI investor reactions. An efficient capital market following the corporate takeover of Shang-wa would allow LEI to expand its customer base by affiliating with a new electronics