Gap Analysis: Lester Electronics

The relationship between Shang-wa and Lester Electronics has been a long-standing, amicable venture that has grown closer as the two company founders have grown as well. Their competitors have also noticed the successes that the respective companies have had and standing buyout proposals are forcing the owners of Lester and Shang-wa to contemplate the individual and collective futures. Now that the merger plans have been approved by the Board of Directors of Lester Electronics, planning needs to go from a contingency phase to an implementation plan. Since the intent has been decided upon, the respective companies now need to analyze their individual financial positions and plot an anticipated combined operational plan and the corresponding costs and revenues that will be generated by their joining. In considering their options, the appointed personnel involved in the merger will need to address issues of shareholder value while considering short-term and long-term financing options.

Situation Analysis

Issue and Opportunity Identification

With Shang-wa and Lester determining to merge operations via forming a partnership, the companies will be able to combine operations for the sake of increasing revenue and profit but this option may also be necessary for the individual companies to remain competitive in what appears to be a growing market. With more players in the field jockeying for market share, it will be important for the combined company to operate on smaller profit margins while increasing global operations. If the proposed merger does not take place, each company appears to be on the verge of being acquired, cooperatively or not, by much larger players in the field thereby changing the contractual agreement between the companies and possibly forcing acceptance of takeover bids. Individually, they may not be able to fend off pursuers but a combination of the two may stave off hostile acquisition. The combined operations of Lester Electronics and Shang-wa will need an amicable country in which to locate the new company that allows for lower operating costs can sustain profitability in an increasingly competitive market. It will be important for the combined ownership of the company to groom successors for the inevitable retirement of the individual company's founders and none exist at this point. By combining successful business strategies in proven markets and lowering operating costs, the combined company should be able to remain successful in current arenas while continuing to expand worldwide.

Stakeholder Perspectives/Ethical Dilemmas

Shang-wa and Lester Electronics must consider the impact of their decisions on all stakeholders of their respective organizations. Those consider are both internal and external to the organization and includes: owners and executives, shareholders, employees, customers, and vendors and suppliers. Certainly, the goal of the company will be to continue as many supplier operations as necessary to achieve their combined goals while continuing to service all of the individual company’s clients. While this takes care of the external stakeholders, the needs of the internal contingent need to be addressed more thoroughly.

Each of the owners of their respective companies certainly has an interest in the longevity and control of their operations. Each is sure to have a vested financial stake in continuing operational revenue and building the value of the company for themselves and for shareholders. Each group also has a right to either receive an equitable offer from potential buyers or the right to change their situation to an amicable solution for both companies and those affected by the merger proposal. Both groups need to analyze the financial decisions and potential outcomes of a merger to determine future value of the company and their corresponding interest in the combined operation.

Shareholders, as is always the case, have an interest in receiving maximum return on their investment. Those shareholders who have voting rights are also interested in both the buyout proposal and the merger plan. Accurately disclosing the financial implications of each scenario will determine how shareholders may vote on either proposal. The voting rights held by shareholders ensure that their interests are considered in each scenario and that they are allowed to consider the ultimate direction of the company. Depending on the amount of stock held internally by the owners and employees, shareholders may be able to block either of the proposals. This position ensures that they are given accurate information and that the companies complete their due diligence in reporting future revenues derived from the merger.

Employees of Shang-wa and Lester Electronics and, as is usually the case, they are in the most precarious position of all of the stakeholders. The employment needs of the combined company will be determined based on the needs of the new operation and the costs involved with expanded global operations. There is a possibility that little or no staff positions will be lost if Shang-wa keeps their manufacturing operation open and Lester continues with its North American distribution operation. The company may even be able to add positions if combined revenue generation allows for sustained operations along with the combined operation in a country to be determined.

End-State Vision

Lester and Shang-wa both have profitable operations and need to develop a strategy for sustaining this outcome in the combined operations. In determining this, the companies will need to analyze current financial statements to determine what starting position they will be in financially and how their merger will determine immediate needs, medium-range goals, and the company’s strategic outcomes.

Immediate positions