Problem Identification
Forty years of business cooperation unite the companies Lester electronics and Shang-Wa Electronics, who worked under a common agreement of one million-dollar minimum wholesale, leading to a lucrative relationship of the partners. As a result, the companies decided to join their forces for maximizing shareholder value.
The principal goal of Lester Electronics is aimed at merging with Shang-Wa Electronics, being the long-time supplier of the company. The paper will be focused on the key concepts helping in financial problem solutions. It should be noted that financial and defense aspects will be covered through the determination of basic strengths, risks and solutions to be followed.
Current Financial Situation of the Companies
Industrial electronics company Lester Electronics is considered to be a huge distributor of original equipment manufacturers in the USA and whole Europe. It is necessary to underline the fact that the company makes about $500 million annually. Nevertheless, the primary markets of the company are small, and cover regional consumers; so, the enterprise signed an agreement with Shang-Wa Electronics, being the manufacturer of electronic components.
Shang-Wa Electronics is considered to be a Korean producer of electric techniques; the company managed to build a well-respected business and became competitive manufacture in the country. The financial agreement, being annually renewed, appeared to be rather beneficial for both companies; nevertheless, the idea of merging can result in financial stabilization and expansion..
Strengths and Financial Alternative Solutions
The Lester electronics and Shang-Wa merging will lead to competitive advantage through relating value to the financial planning process, during the usage of optimal budgeting techniques for the purpose of closing the gap between implementing alignment and cash disbursements. The fact is that the balance between profitability and growth will be set up in the case of the company’s investment capital allocation to value-added planning. Appropriate financing methods development will allow Mr. Lester and Mr. Lin to produce wise investment decisions and expand the project’s wealth.
It is necessary to outline the principle challenges that will be faced by Lester Electronics in case of merging.
- The selection of the most appropriate and optimal financing option leading to the highest NVR;
- The quantification of the value added by the merger to Shang-Wa and Lester electronics;
- The achievement of a ‘buy-in’ agreement from Shang-Wa Electronics.
Financial regulations of Lester Electronics will be reached through the company’s opportunity to make use of financial leverage as the basic growth tool; besides, there is a chance to determine the Capital Weighted Average Cost as the principle tool on the way of understanding options’ real NPV (Lester Electronics Inc. and Shang-Wa Financing Solution, 2008).
In order to make the most beneficial solution to a problem, it is necessary to identify key financing instruments resulting in the lowest average capital cost with the greatest NPV. The basic goals of financial planning of Lester Electronics will be concentrated on the following steps:
- To acquire 100% of Shang-Wa in the running year period;
- To make use of debt for the purpose of 20% NPV growth achievement.
One of the basic steps for the finalization of the merger is based on the agreement of the bid price; it is possible through Shang-Wa valuation, covering such aspects, as company assets, taxes, earnings, and the contributions of the shareholders. It should be stated that merging will be fulfilled by the companies’ representatives; besides, the investors will participate in the future dividends and merger propositions till Lester electronics can buy back the stock. Nevertheless, newly issued stocks will lead to the lowering of the current one; and despite this fact, Lester electronics’ failure to finance the required money will become the principal reason for new stocks creation.
In case of corporation’s merge, one of the companies is considered to be a surviving one; in business acquiring the surviving corporation remains functioning, and the acquired one never does. So, as a result, the surviving corporation gets all the interests to property and real estate, as well as the rights and title without impairment. This step is considered to be beneficial for Lester electronics. One of the problem solutions can be based on partnership formation where the losses and profits of business operations are shared between the owners. In the case of Lester Electronics and Shang-Wa, the silent partnership would be the most appropriate as it is uninvolved in the company management (Bassi, 2008).
One more beneficial step is focused on the idea of Shang-Wa’s reorganization of sales and financial personnel interest in order to include diversifying into capacitors distributing from the company without the involvement of Lester Electronics. Besides, there is a possibility of reverse merger direction with Shang-Wa acquiring Lester Electronics, though in this case, the firm would not get financial benefits as Shang-Wa can become the surviving company.
Lester Electronics can reorganize the internal structure of the company to include internet exclusive commerce lowering duality need and profit ratio on the basis of strong capital budgeting. It is necessary to underline the fact that global business creation without multi-facilities will considerably contribute to maximizing shareholder wealth. Such aspects, as additional stock issuing, personnel training, and specialized data systems acquiring should be compulsorily reached for the problem regulation.
The analyzed financial ways out of the problem allow seeing the methods of maximizing the shareholder wealth, making the company competitive, and manufacturing new products for distribution. The usage of diversifying techniques and reorganization of the company’s internal structure will contribute to the financial expansion of Lester Electronics. In order to succeed in the industrial capacitor market and global consumer, Lester Electronics is to develop an appropriate implementation plan focusing on Shang-Wa Electronics merging and maximizing the shareholder wealth.
End-state Vision
The company will accomplish several goals merging with Shang-Wa Electronics; one of the steps to be reached is to preserve the longevity and competitiveness of the firm. The operations will force Lester Electronics to finance the acquisition through a number of strategies, keeping fixed stock prices; besides, it can defend the company from going into debt causing it to struggle financially. Shang-Wa acquisition will contribute to the required supply of capacitors stimulating for further production; this step will lead to newly manufactured products and high demand (Kimmel, P., Weygandt, J. Kieso, & Donald E., 2007).
Following the steps of the implementation plan will result in the fulfillment of the company’s principal financial aims. It is necessary to underline the fact that reached goals will bring longevity, competitiveness, and profit increase to Lester electronics; the maximization of shareholder wealth will be provided through financial stability and international competitiveness of the company.
References
- Bassi, S. (2008). Lester electronics – Maximizing Shareholder Wealth. Business and Finance.
- Kimmel, P., Weygandt, J. Kieso, & Donald E. (2007). Financial Accounting: Tools for Business Decision Making. 4th edition. John Wiley and sons. New Jersey.
- Lester Electronics Inc and Shang-Wa Financing Solution. (2008). University of Phoenix. MBA-540 material.