Lester Electronics

Running head: PROBLEM SOLUTION: LESTER ELECTRONICS

Problem Solution: Lester Electronics

Nicole Salem

University of Phoenix

Group LM06MBA01

Ronald Hallam

March 15, 2007

Problem Solution: Lester Electronics

Lester Electronics Inc has made a corporate decision to merge with Shang-wa to maximize the potential and maximize the wealth of the two companies. The merger will allow each to capitalize on the strengths of the other while minimizing their weaknesses.

In 1978, Shang-wa Electronics, a small Korean manufacturer of capacitors, entered into an exclusive United States distribution contract with Bernard Lester, who then officially founded Lester Electronics, Inc (LEI). LEI grew rapidly as Lester added additional components to its product line, and made inroads with two large domestic manufacturers that use capacitors in both consumer and industrial products.

As a consumer and industrial electronics master distributor, Lester markets its products to small and medium sized original equipment manufacturers (OEMs), repair facilities and small local distributors throughout the Americas and Europe. Lester has never marketed domestic made parts outside of the United States. Operating in this way, the companies' revenues approximate $500 million a year. In 1984, Bernard Lester took his company public, and it is now traded on NASDAQ market and rated Baa by a nationally recognized rating agency.

Shang-wa CEO John Lin began manufacturing capacitors in 1969, building a small, well-respected business in Korea. In 1978, John entered into an exclusive supply agreement with Bernard Lester. Under the contract, Shang-wa granted Lester the exclusive right to sell Shang-wa capacitors in the United States for 65 years, as long as Lester maintained a minimum annual purchase of $1 million wholesale; as a result; Shang-wa is Lester's primary supplier of capacitates for the U.S. market. In exchange, Shang-wa cannot knowingly sell its capacitors to anyone intending to market to U.S. buyers.

During his past two visits to the United States for Lester's quarterly Board meetings, John has informally suggested that Shang-wa is open to growth opportunities that could position the company to meet growing demand. A merger will bring success to both firms increasing growth and expansion.

"A merger refers to the absorption of one firm by another. The acquiring firm retains its name and its identity, and it acquires all of the assets and liabilities of the acquired firm. After a merger, the acquired firm causes to exist as a separate business entity" (Ross, 2004). It has been announced that two companies will merge and benefit from one another.

Situation Analysis

Issue and Opportunity Identification

Lester will face many challenges in implementing this merger offering many opportunities to strengthen the company as a whole. The first issue is Lester Electronics' need to plan and execute the merger and create a global manufacturing and marketing company profitable to its shareholders. The opportunity for Lester Electronics is the expansion of its global market and manufacturing capability while maximizing wealth among its shareholders. Growth and expansion while maintaining profitability are vital to a company while considering the merger. Lester Electronics has never marketed domestic-made parts outside of the United States. This has become a growing issue because one of the LEI's interests is to expand market not only domestically, but globally as well. Without experience in this arena, this will hold back Lester from achieving the goal of doing business globally.

Another issue is that Lester can take advantage of the merging of two business cultures to create a highly efficient and profitable manufacturing and marketing capability. This is an opportunity for Lester to create a process oriented business model through the concepts refined in the east and merging these successful models into the manufacturing anf sales aspects of their business

In addition, another issue to keep in mind is that John Lin, founder and CEO of Shang-wa Electronics, is coming closer to his retirement. He is looking forward to retire but worries because there is no successor to his company. This is extremely relevant to LEI because Shang-wa has been the primary electronics supplier, and any change with Shang-wa would have a significant impact on LEI and its sales revenue. The opportunity from the Shang-wa's perspective is to maximize wealth by selling or partnering with a company that is better in management and able to offer high value for the company. The opportunity from LEI perspective is to acquire Shang-wa to absorb the Korean market, maintain and increase company's sales revenue.

Accessing global money markets is another issue. This will offer the opportunity to lower costs by having access to cheaper money and lower cost labor pools.

The last issue is Shang-wa has received a hostile takeover bid from Transnational Electronics (TEC). If LEI looses Shang-wa, LEI stands to lose upwards of 45% of the expected revenue over the next five years. As mentioned earlier any change with Shang-wa would have a significant impact on LEI. In this case the hostile takeover could result in reduction of 45%. The opportunity is to prevent TEC from acquiring LEI by acquiring Shang-wa first. This will protect LEI's future and meet demands of the growing opportunities in electronics.

Stakeholder Perspectives/Ethical Dilemmas

Conflicts can occur when one stakeholder or group of stakeholders ahs interest, rights, or values that are at odds with another stakeholder, or group of stakeholders' interests, rights or values. Most situations have at least the potential for conflict. It is important to identify potential conflicts, paying particular attention to ethical dilemmas.

Stakeholder groups associated with Lester Electronics and Shang-wa are the same. They involve everyone in the company including shareholders, top management, and consumers, financial markets, marketing targets, supply chain, employees and government regulators. These groups impact both companies. The values associated with these groups are the need for accountability, fairness, respect, social responsibility, integrity and honesty in providing quality products and services.

Competitors