Problem Definition

Lester Electronics, Inc. (LEI), Shang-wa Electronics, Transnational Electronics Corporation (TEC), and Avral Electronics, S.A. are firms that are involved with growing through mergers and acquisitions and each firm desires to maximize shareholders wealth. In 1978, Shang-wa Electronics, a small Korean manufacturer of capacitors, formed a partnership with Bernard Lester who then founded LEI. LEI entered into an exclusive United States distribution contract with Shang-wa. LEI grew rapidly into a consumer and industrial electronics parts master distributor. Lester has not marketed domestic-made parts outside of the United States and LEI’s revenues approximate $500 million a year. Also, LEI is rated Baa by a nationally recognized rating agency.

Situation Background (Step 1)

Lester Electronics (LEI) is at a cross roads in its development. It has been presented with an opportunity to acquire Shang-wa, a Korean supplier with which it has a long standing agreement for the exclusive distribution rights to the USA. Alternatively a proposal has been presented for LEI to joint venture with Shang-wa to establish another manufacturing facility in a country neighboring Korea. However, one of LEI’s very large competitors has already offered to acquire Shang-wa. That would put LEI in jeopardy of losing a product line which accounts for 43% of the current revenues. This new information comes to LEI less than a month since LEI’s Board of Directors approved a major capital expenditure in the amount of $50 million to establish two distribution facilities in Europe. In the midst of this LEI has become an acquisition target of another of their very large competitors.

Issue Identification (Nadine)

The issues are to make some critical choices in a limited time. LEI may acquire Shang-wa, may be acquired by Avral, may establish a joint venture with Shang-wa, and/or may use the capital set aside to expand into Europe. Avral like Shang-wa has done in the past can use LEI to initially access the U.S.

Opportunity Identification

Bernard is presented with the opportunity to let LEI be acquired by Avral and make the financial future more secure for himself. Bernard may choose to expand the business and possibly achieve larger financial success over the long term.

Stakeholder Perspectives/Ethical Dilemmas

The major stakeholders in scenario one is Lester Electronics, Shang-wa, employees and shareholders. LEI interest in to retain current revenue patterns and not have 43% deduction in that revenue over the next 5 years. Shang-wa interest is a long-term picture that presents an auspicious forecast. Although owner and CEO John Lin are leaning toward retirement, he has an affinity for Shang-wa to continue successfulness under new ownership if that came to fruition. Dilemmas for both LEI and Shang-wa centers around not doing anything and risk hostile acquisition from Arval or TEC.

LEI employees are interested in keeping their jobs, and they have the right to be told timely what may happen to their jobs. The ethical dilemma is that the LEI management will do whatever is in the best interest of the people that they work for which is the Board of Directors. That is likely to include job cuts and relocation. Many mergers and acquisitions have eschewed the people issues in the consolidating organizations. This neglect has led to 50 to 70% of joint ventures failure. Organizational changes make employees apprehensive on both sides of amalgamation. Employees have reported that a lack