Lester Electronics Financing Solution Paper
The decision to merge with Shang-wa is an important milestone at Lester Electronics Incorporated one that has led to the creation of many goals and expectations for the business. The following proposed solution was designed to assist Lester Electronics Incorporated accomplish its goals while focusing on providing the maximum wealth for Lester's shareholders through an optimal financial alternative. Situation Analysis
In the Bernard Lester scenario Lester Electronics, Inc. and Shang-wa Electronics were both Corporations started from humble beginnings and both founders of the companies are Chief Executive Officers (CEO) of the businesses. Shang-wa Electronics entered into an exclusive supply agreement with Lester Electronics, Inc. Because of the agreement, Shang-wa is Lester Electronics primary supplier of capacitors for the U.S. market. The two companies entered into a general partnership. "In a general partnership all partners agree to provide some fraction of the work and cash and to share the profits and losses. A partnership agreement specifies the nature of the arrangement. The partnership agreement may be an oral agreement or a formal document setting forth the understanding," (Ross, Westerfield & Jaffee, 2005, p. 11). Ford Motor Company and Firestone Tire and Rubber Company, like the two companies in the scenario, also entered into a partnership.The partnership between the two companies lasted until 1996, when several state agencies in Arizona began having major problems with Firestone tires on Ford Explorers. Ice cream maker, Cold Stone Creamery and fast-food operator Kahala Corporation are an example of two other companies that decided to join forces via a merger to expand their operations. The merger of Cold Stone Creamery and Kahala Corporation will result in a holding company, based in Scottsdale Arizona that will consist of 13 brands. According to The Associated Press, the expected revenues generated will be in excess of $1.1 billion (The Associated Press, 2007). In addition, the holding company will be comprised of over 3,000 franchises and over 4,000 retail locations in 15 countries (The Associated Press, 2007). In the scenario, the merger will allow Lester Electronics, Inc. to expand its presence globally, specifically into Asia.
Similarly to Cold Stone Creamery and Kohala Corporation, Firestone and Ford Motor Company, Bausch & Lomb, an eye health company, primarily focused on eye care products such as contact lenses, lens care products, and ophthalmic surgical and pharmaceutical products has agreed to merger with a leading private equity investor, Warburg Pincus. The merger includes Warburg Pincus acquiring Bauch & Lomb for approximately $4.5 billion (The Associated Press, 2007). Because of issues surrounding the company, Baush & Lomb felt that it was definitely in its best interest to merge. Lester Electronics Inc. and Shang-wa are not in the same situation as the two companies mentioned in the preceding, but they can use the merger agreement between the two companies as a template for their own. Issues and Opportunities
Merging more than two companies together is often a big risk and involves extensive decision-making. In making the decision of whether to merge, the companies involved will look at documents such as cash flow statements, bank statements, etc. In the case of Shang-wa and Lester Electronics Incorporated's merging, both companies have worked together in the past and are aware of the pros and the cons of a merger. In assessing the risks of the merger, financial managers should focus on the issues of long-term debt and measuring economic exposure. Debt represents something that the company must repay; it is the result of borrowing money. Long-term debt is a promise by the borrowing firm to repay the principal amount by a certain date, called the maturity date (Ross, Westerfield & Jaffee,...