Lester Electronics
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Running head: GAP ANALYSIS: LESTER ELECTRONICS
Gap Analysis: Lester Electronics
University of Phoenix
MBA 540
Maximizing Shareholder Wealth
April 9, 2007
Gap Analysis: Lester Electronics
The stockholders own the company and elect the board of directors, who then appoint the management team. Management, in turn, is supposed to operate in the best interests of the stockholders. One goal of the management is to make decisions that will maximize the value of the stock, including dividends. As the CEOs of Lester Electronics and Shang-Wa Electronics, Bernard Lester and John Lin are faced with making the decision to merge so they are not forced into a hostile takeover. With the merger also come many opportunities for them as they capitalize from the strengths and weaknesses of each other. As they combine the two companies they will have an opportunity to develop a financial plan that will allow them to forecast their financial future. As they are reviewing each others balance and income statements they will be able to determine the viability of pursuing leasing equipment.
Situation Analysis
Issue and Opportunity Identification
Lester Electronics, Inc. (LEI) is an electronics parts master distributor, marketing its products to small- and medium-sized original equipment manufacturers (OEMs), repair facilities and small local distributors throughout the Americas and Europe. LEI has had an exclusive distribution contract with Shang-Wa Electronics for the United States. This agreement has served both companies very well. LEI and Shang-Wa have proven that they can meet the growing demands of the market and now both CEOs have been approached by other companies wishing to acquire them. John Lin, the founder and CEO of Shang-Wa Electronics wishes to spend less time on business and more time with his grandchildren. With the threat of a hostile takeover, Mr. Lin approached Mr. Lester about a merger to protect Shang-Wa and prevent LEI from losing 43% of its revenue over the next five years if it loses Shang-Wa as a manufacturer.
There are many issues facing both companies individually and when they combine. Individually both companies have their own financial plan of where they expected to be in the future according to their strategic goals and objectives. With the pending merger a new financial plan will need to be developed to allow the joint company to prosper and Mr. Lin to have the time to spend with his grandchildren. Individually LEI and Shang-Wa have been operating with the intent to maximize the value of their respective companies and stockholders, but now that they will be merging, they must develop a plan to continue maximizing the new company while deciding who the stakeholders will be. “Accountants generally argue that a firms financial strength is inversely related to the amount of its liabilities” (Ross-Westerfield-Jaffe, 2004, Chapter 21, p.596). Without a great deal more information it appears that Shang-Wa may not have been taking full advantage of leasing since their net income for the last reporting year was one third of LEIs but their total liability was significantly higher. Shang-Was long-term debt is 48 times higher than LEI, making it a prime opportunity for the combined company to evaluate their strategy for paying long-term debt.
Stakeholder Perspectives/Ethical Dilemmas
Stakeholders are persons, groups or institutions with interests in a policy, program or project. When determining interests, importance, and influence there are a few key questions to include (Allen & Kilvington, 2001):
What are the likely expectations of the project by the stakeholder?
What benefits are there likely to be for stakeholders?
What resources are the stakeholders likely to commit (or avoid committing) to the project?
What other interests does the stakeholder have that may conflict with the project?
How does the stakeholder regard others on the list?
It is then necessary to determine the influence and importance of each stakeholder on the project. In this case, how much influence and importance does each of the stakeholders have on Lester Electronics successful merger with Shang-Wa Electronics? Influence refers to how powerful a stakeholder is and importance refers to those stakeholders whose problems, needs and interests coincide with the aims of the project (Allen & Kilvington, 2001). By definition of his position as the CEO, Bernard Lester has the power to control what decisions are made and to facilitate the implementation of a merger with Shang-Wa Electronics. The question is does Mr. Lester have the influence to persuade or even coerce the other stakeholders into assisting him in pursuing this merger?
Stakeholders should be able to participate meaningfully in decision-making and should play their part in delivering sustainable development. Participation should reduce the risk of failure, but it is not a guarantee of project success (Mascarenhas-Keyes, 2004). Achieving participation is not easy and may not be easy for Mr. Lester. There are conflicting interests among the key stakeholders and this may result in additional costs in time while the conflicts are being resolved. With the threat of a hostile takeover, time is of the essence for both Lester Electronics and Shang-Wa Electronics. According to the “stakeholder” theory, the business manager serves multiple masters. Who are these masters, and what are their demands? Shareholders demand protection of, and a fair return on, their investment. Customers demand delivery of promised goods and services for value received. Employees demand a safe working environment, fair compensation, and honest communication. Senior management demands adherence to direction and policies. “Ones personal belief system demands truth to ones self, and our communitys demand that we abide by established laws. Herein lies the potential for conflicting interests and personal pain” (Schuster & Smith, 1994).
End-State Vision
The joint company of Lester Electronics and Shang-Wa Electronics maximizes the value of the company and the shareholder wealth.