Lester Financial Benchmarking

Running head: LESTER FINANCIAL BENCHMARKING

Lester Financial Benchmarking

Lester Financial Benchmarking

Euronet and RIA Envia INC – Mergers and Options -

The Lester and Shang-Wa merger is one that will allow both organizations to survive the market from hostile bids and enjoy steady growth. For this merger to take place though Lester needs to raise funds that would appease Shang-Wa. With Lester’s on take of Shang-Wa Lester will experience from the financial forecast a decrease in projected revenues and increase in liabilities (University of Phoenix, 2008). This information does not include though that if Lester were to not purchase Shang-Wa that the organization would pay an increased amount from other vendors for the same services (University of Phoenix, 2008). Even with the on take of the additional cost involved with Shang-Wa, Lester may have more long-term benefit by the merger.

Aside from the funds needed to fund the merger Lester will also need funds to construct a new manufacturing facility. Lester can gather these funds from a few different options including cash and loans. Loans can take the form of bank loans or corporate bonds, which would have warrant and convertible guidelines. Alternatively Lester can also offer a stock-for-stock transaction to Shang-Wa (Ross, Westerfield, & Jaffe, 2005). The volatility of the stock though may deter Shang-Wa from accepting this form. To offset the market fluctuations Lester can offer Shang-Wa contingent value rights. The contingent value rights act similar to a warrant in regards to Lester could offer Shang-Wa a dollar figure in share at the current stock price with a form of insurance stating that Lester would pay the difference between the stock price and the end-date price if the price were to decrease from the original stated value (Ross, Westerfield, & Jaffe, 2005, & Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). According to Caselli, Gatti, and Visconti (2006),

“In the case of pre-closing risks, offers with “collars” can protect target company shareholders from a drop in bidder company share prices while at the same protecting acquirers from excessive dilution. Post-closing instruments such as earn-outs and contingent value rights can be used to manage the risk of substandard performance and the overpayment that would result from underperformance” (91)

Lester can evaluate other firms that participated in contingent value rights such as General Mills and Euronet (Ross, Westerfield, & Jaffe, 2005, & Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). Euronet agreed to acquire RIA Envia in 2006 by cash, equity from common stock and loans (Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). The stock-for-stock transaction would involve 100 million in shares with a 20% contingent value right (Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). The purpose of this merger was to increase the stronghold in the market for money transfers (Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). RIA Envia held a strong market share while Euronet had the knowledge and skill to further expand that RIA Envia was interested in (Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). Since both companies operated as money transfer companies the benefit of the merger would show directly onto the bottom line (Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). In Lester’s situation this would be unlikely to happen.

The contingent value right may allow Lester to acquire Shang-Wa at a more competitive price. Euronet’s strong growth prospect allowed the organization to offer a 20% contingent value right on the 100 million dollars of shares (Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). The exact terms consisted of the investors paying a ten percent premium (110 million for the valued 100 million in shares) and allowed the contingent value right to mature in 18 months after the merger closed (Event Brief of Euronet Agrees to Acquire RIA Envia, Inc., the Third-Largest Global Money Transfer Company – Final, 2006). Euronet would