Terrateach

Problem Solution: Lester Electronics

Gap Analysis: Lester Electronics

Merger's, acquisitions, partnerships, and various combinations of company takeovers occur daily in today's business arena. Understanding the responsibility of social and economic development, wealth, prosperity, and longevity begins with understanding the financing aspect of a business based on the consumer's need. Bernard Lester, CEO and founder of Lester Electronics is currently entered into an Exclusive Supply Agreement with John Lin, founder and CEO of Shang-wa Electronics. Shang-wa Electronics manufactures capacitors which Lester exclusively has the right to sell the capacitors in the United States for 65 years (University of Phoenix Scenario, 2007). The annual agreement is up for renewal and now facing possible competitors. The Board of Directors for Lester Electronics has made the decision to allow a merger with Shang-wa. In order to complete the merger the board of directors must consider assessing financing need for wealth maximization, identifying medium-term financing alternatives, and analyzing long-term financing instruments. This paper will compile a gap analysis incorporating the issues/opportunities, stakeholder perspectives, and end-state goals involved in assessing the financial need for wealth maximization, identifying medium-term financing alternatives, and analyzing long-term financing instruments in the merger decision by the board of directors.

Situation Analysis

Issue and Opportunity Identification

Situational analysis involves understanding the issues observed with opportunity to evolve above the issues and help designate distinctive particulars that helped to initial or create the problem. Deciding to how to handle the financial ramifications of a company can be difficult if the problem solving solution method is not utilized. There are several options that begin to transpire once the Board of Directors of Lester Electronics make a decision. The issues and opportunity for Lester Electronics and Shang-wa deal with possible merger, joint venture, acquisition, partnership, and financing.

"A merger refers to the absorption of one firm by another. The acquiring firm retains its name and its identity, and it acquires all the assets and liabilities of the acquired firm (Ross, Westerfield, and Jaffe, 2005)." The issue based on the scenario deals with TEC going after Shang-wa and Avral Electronix expressing its interest in Lester Electronics (University of Phoenix Scenario, 2007). John Lin, founder of Shang-wa Electronics is looking forward to specinf less time in business and more time with his family. "John has informally suggested to Bernard that they partner to establish a new capacitor manufacturing facilityÐ'...(University of Phoenix Scenario, 2007). The opportunity would be for the two companies to merge. The merger would provide and enable both to meet the growing demand for the capacitor along with high demand distribution globally. The merger would also provide Shang-wa with the management talent the company needs to prosper.

Wall Street describes cost of capital as the overall percentage cost of the funds used to finance a firm's assets. Cost of capital is a composition of the individual sources of funds including common stock, debt, and retained earning. "The goal of an individual or business is to limit investment to assets that provide a return that is higher than the cost of the capital that was used to finance those assets (Scott, 2003)." Bernard Lester, CEO of Lester Electronics and John Lin, CEO are considering joining teams and sharing the financial profit they both foresee. The financial alternatives available are part of the issues faced in making a decision on how to handle the assets and cost of capital. The opportunities available include investments, stock options, call and put options, stock repurchase, and executive stock options to name just a few. An example would be a stock repurchase that will give Lester Electronics increased financial flexibility as fewer dividens are paid out and cash flows increase (Ross, 2005). The financial benefit of a repurchase is it helps cease any chances for a hostile takeover by Avral Electronics. The call/put options for TEC could apply the same concept for Lester allowing him to purchase a set amount of shares with the option to gain on a post-tax profit with the acquisition.

Opportunities and issues being defined help in the problem solving analysis when looking over all aspects. Joint venture, partnership, and acquisition are further discussed in Table 1 for reference.

Stakeholder Perspectives/Ethical Dilemmas

Stakeholders perspectives and ethical dilemmas play a major role in the problem solution process. Looking at different perspectives internally and externally can lead to development of what problems need to be defined and resolved. The ethical dilemmas are based on the values that are conflicting between stakeholders during the problem solving process.

The Lester Electronics Scenario stakeholders identified are the executive team, stockholders, and employees. The stakeholder groups that are in opposition or possible ethical dilemmas are the executive team verses executive team from other companies, stockholders verses executive team, and executive team verses employees.

The values for the Executive Management are based on the overall vision. Executive management interest and values include accountability, finance, profit and gain, and global markets. Employee satisfaction is baled on several issue that be considered if lose their job based on the business decision made. The interest, rights, and values are outlined with detail in Table 2 for further reference.

Problem Statement

The problem for Lester Electronics is based on opposition in the capacitor market based on profitable growth and demand. LEI and Shang-wa electronics have

End-State Vision

Alternative Solutions And Analysis Based on Benchmarking

Issue #1: Joint Venture

Alternative Solution: Micron Technology Inc and Intel Corp

Close to two years ago, Micron Technology Inc and Intel created a plan for a joint venture. "Joint Venture is a business enterprise in which two or more companies enter a temporary partnership" (dictionary.com). The joint venture was set "to manufacture NAND flash memory for use in consumer electronics, removable