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Gap Analysis: Lester Electronics

In the Lester Electronics Scenario, there are several things going on at once. Shang-Wa had already suggested a partnership to Lester Electronics, but this is now becoming more urgent due to a hostile takeover bid by TEC. In fear of losing

his company, John Lin, the CEO and founder of Shang-Wa, approaches Bernard Lester, CEO of Lester Electronics with a serious proposal to form and partnership and expand the business in to a neighboring Asian country. Lester Electronics however, has to decide whether a partnership is the best way to go, or if acquiring Shang-Wa outright would be more beneficial. This paper will go over any issues and opportunities associated with this scenario.

Situation Analysis

Issue and Opportunity Identification

The Lester Electronics Scenario has potential for several issues and opportunities. The first issue is that Shang-Wa has been approached with a hostile takeover bid. TEC showed its interest in acquiring Shang-Wa to expand their global growth opportunities. Shang-Wa knows that due to the size of the TEC as a company, this could turn in to a hostile takeover is they do not cooperate. As part of their defensive technique, Shang-Wa has approached Lester Electronics with the idea that a partnership would benefit both companies. Lester Electronics has done the research and found that a merger would be more beneficial to the company. This could cause some possible problems with Shang-Wa because their proposal was for a partnership, not a merger. John Lin, Shang-Wa's CEO may not be ready to give up his company just yet, even though he has been thinking of retiring soon. As part of a merge with an internationally based company, Lester Electronics will also have to do the research to find out how to best deal with operational exposures, such as exchange rate fluctuations.

Stakeholder Perspectives/Ethical Dilemmas

There are several ethical dilemmas and differences in perspectives that Lester Electronics and Shang-Wa need to consider. Lester Electronics is finding that it would be in their best interest to merge with Shang-Wa, and Shang-Wa's CEO, John Lin, is interested in a partnership instead. John Lin is the founder of Shang-Wa and is not quite ready to give up complete control yet. However, he has been considering retiring. This poses an ethical dilemma between Shang-Wa and its stakeholders. John Lin may be making a decision based on what is best for him rather than what would be more beneficial for the company. Shang-Wa has been loyal to Lester Electronics for 35 years in providing Lester Electronics with a primary supplier of capacitors for the U.S. market. Lester Electronics is now faced with deciding on whether to return that loyalty to Shang-Wa and form a partnership that will benefit both companies and John Lin himself, or to do what is best for Lester Electronics and acquire Shang-Wa outright.

End-State Vision

Lester Electronics will grow globally by merging with Shang-Wa. This will allow them to not loose their primary supplier, which would have cost them up to 43 percent in revenues. Lester Electronics will increase their revenues by meeting the growing demands of the global market. John Lin will retire knowing that his company is in good hands with Lester Electronics's CEO, Bernard Lester, who is not only a business partner but a friend as well. With the merge between Lester Electronics and Shang-Wa, Shang-Wa will be able to avoid a hostile takeover by TEC.

Gap Analysis

To reach its goals, Lester Electronics will have to convince Shang-Wa that a merge is what is best for both the companies. Lester Electronics will have to show that by not merging, Shang-Wa is in danger of a hostile takeover by TEC and that the merger will save the company and ensure John Lin that this will ensure that Shang-Wa stays in good hands. John Lin can then retire and have more time to spend with his grandkids like he was planning on doing in the near future. Lester Electronics can then increase revenues in the global market by establishing a new capacitor manufacturing facility in neighboring Asian Countries, like John Lin had already suggested they do with a partnership. Lester Electronics can use some of the research already done by Shang-Wa to accomplish this.

Conclusion

As can be seen above, there are many things to think about when deciding whether or not to acquire another company. A few of those things would be to look at the financial statements of the company to be acquired to make sure that this will add to the revenues of the acquiring company. In this scenario, there was also a friendship to consider. If done right, the friendship can be sustained and the merger can benefit both companies involved.

References

Ross. (2005). Corporate Finance (7th Ed.). New York: McGraw-Hill.

Eun, C. & Resnick, B. (2004). International Financial Management (3rd Ed.). New York: McGraw-Hill.

Table 1

Issue and Opportunity Identification

Issue Opportunity Reference to Specific Course Concept