Running head: PROBLEM SOLUTION: LESTER ELECTRONICS
Problem Solution: Lester Electronics
Nancy E. Craig
University of Phoenix
February 2, 2009
Problem Solution: Lester Electronics
Acquisition and mergers happen all the time and can be of different circumstances. Generally acquisitions can be friendly or hostile if an organization is not careful. Mergers and consolidations are generally of much friendlier terms and are the least costly from a legal perspective. They do require voting approval of the board and generally create synergy that helps with increasing revenue, lowering costs, lowering taxes and lowering the cost of capital in itself (Ross, et.al, Chapter 29). Alternative methods of acquisitions could be through the purchase of stock or the purchase of assets. While shareholders of the acquiring firm generally do well with an acquisition it is stated that shareholders of the acquiring do not benefit from much gain (Ross, et.al, Chapter 29). Through this process LEI will need to calculate the best financial situation for a merger creating a financing mix that optimizes financial structure through a combination of debt and equity. The intent of this paper is to present possibilities for LEI and Shang-Wa through the process of a vertical merger creating synergy that will result in optimal shareholder wealth (Ross, et. al, Chapter 29).
Situation Analysis
Issue and Opportunity Identification
LEI and Shang-Wa have been partners for 35 years under an exclusive contract giving LEI exclusive selling rights in the US so long as they continued to purchase 1 million in wholesale, yearly. Recently approached by a representative from one of its competitors (TEC), Shang-Wa is faced with an acquisition and possibly a hostile takeover (Ross, et.al, Chapter 29) which would ultimately result in a 43% reduction of revenue for LEI. This loss of revenue could yet result in the acquisition of LEI from yet another competitor, Avral. Although partnered...