Uop Mba540 Lester Solution (Some Tables)

Problem Solution: Lester Electronics

Over the course of many years, the business relationship between John Lin, owner of Shang-wa Electronics and Bernard Shaw, CEO of Lester Electronics, Inc., has grown financially and personally (University of Phoenix, 2005). Shang-wa produces specialized capacitors for which Lester Electronics has the exclusive market in the United States. With the impending takeover by two outside firms, Transnational Electronics Corporation (TEC), and Avral Electronics, S.A., John has proposed a merger of Shang-wa with Lester Electronics. Bernard brought the proposal before the board of directors, who agree that the amalgamation would bring further financial success and now need recommendations and analysis of alternatives for financing this merger. The executive leadership team is tasked with analyzing financial strategies to accomplish this goal with the globalization of Shang-wa and Lester Electronics. "There is no more dramatic or controversial activity in corporate finance than the acquisition of one firm by another or the merger of two firms" (Ross, Westerfield, and Jaffe, 2005, p. 796). Acquisition benefits are referred to as synergies. "The acquisition of one firm by another is, of course, an investment made under uncertainty" (Ross, 2005 p. 795). Being global companies, legalities, tax issues and accounting structures must be accommodated. "In mergers and tender offers, the acquiring firm buys the voting common stock of the acquired firm" (Ross, p. 798). All potential key metrics will be used to determine the best possible financing solutions while maximizing shareholders wealth on behalf of both Lester Electronics and Shang-wa.

Situation Analysis

Issue and Opportunity Identification

Transnational Electronics Corporation and Avral Electronics both see growth potential and increasing shareholder value in acquiring Lester Electronics and Shang-wa. As global corporations, TEC and Avral have definite advantages over the slightly smaller corporation. Lester Electronics will lose shareholder value if the exclusive distribution of the component supplied by Shang-wa were to be controlled by an outside company. Costs and potential outside influence would hedge Lester's financial gains. In order to defeat a takeover by either TEC or Avral, some type of synergy must be accomplished between Shag-wa and Lester Electronics. However, John Lin approached Bernard Lester with a partnership proposal. After due consideration, the Board of Directors for Lester Electronics has reviewed the financial metrics and concluded that a merger would be more financially suitable. Bernard and John Lin must come to some type of compromise and settle on a viable solution in order to avoid the potential risks of either Avral or Transnational gaining controlling interest in Shang-wa or Lester Electronics.

Shang-wa and Lester Electronics need to evaluate their perspectives with financial planning and capital budgeting. The merger will strengthen both companies and increase shareholders wealth. Other opportunities include growing Lester into a global market, whereas they are mainly focused in the United States. While Lester is aware of monetary exchange rates with Shang-wa, other countries have additional cultural and monetary considerations. This will prove a difficult task to overcome. Benefits of globalization may allow Lester electronics to achieve lower labor costs and cheaper money.

Financing this merger will require both short term for immediate needs and long term financing. Lester Electronics must come up with a substantial amount to place as good faith. "Marketability refers to how easy it is to convert an asset to cash. Sometimes marketability is referred to as liquidity" (Ross, 2005, p. 771).

Stakeholder Perspectives/Ethical Dilemmas

Despite their friendship, Bernard Lester must continue to add value to Lester Electronics and take responsibility for the best potential opportunity for all concerned.

Problem Statement

Lester Electronics will continue to grow and maximize shareholder wealth by successfully merging with Shang-wa.

Conclusion

Lester Electronics will maximize shareholders wealth by merging with Shang-wa.

References

Ross, S. A., Westerfield, R. W., & Jaffe, J. (2005). Corporate finance (7th ed.). New York: McGraw-Hill Companies.

University of Phoenix. (2005). Capital Budgeting [Computer Software]. Retrieved October, 2007, from University of Phoenix, rEsource, Simulation, MBA540-- Maximizing Shareholder Wealth, Apollo Group, Inc. Web site.

Issue Opportunity Reference to Specific

Course Concept

(Include citation) Concept

John Lin has no apparent heir, and wants to see that the business he developed will continue. John appears to have a sole proprietorship or at the minimum a major controlling interest. Any mergers will have to face close scrutiny. With a successful planning model, the financial arrangements will be successful. "...the ultimate merger price make

application of the model quite difficult in reality" (Ross, 2005).

Financial Planning Model

Since Shang-wa and Lester are merging, loans may be assumed and the strength of the company needs to reflect a valuable corporation in order for them to gain the best rates at the lowest costs. Shang-wa and Lester financials will reflect a very viable company in order to achieve the best rates. "If the goal of the management of the firm is to make the

firm as valuable as possible, then the firm should pick the debt-equity ratio that makes the

pie--the total value--as big as possible" (Ross, 2005, p. 402). Growth and the debt-equity ratio

The merger between Shang-wa and Lester Electronics must maximize shareholder wealth on both sides. By merging, the costs of the merger are lowered thereby keeping retained earnings and tax credits. "A merger is legally straightforward and does not cost as much as other forms of acquisition.

It avoids the necessity of transferring title of each individual asset of the acquired

firm to the acquiring firm" (Ross,