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Running head: LESTER ELECTRONICS GAP ANALYSIS
Lester Electronics Gap Analysis
Emma Lou Who
University of Phoenix
Lester Electronics Gap Analysis
The best thing about the future is that it only comes one day at a time. Abraham Lincoln
Lester Electronics Incorporated (LEI) stands at a crucial crossroad. The company faces a takeover from a larger competitor or the potential merger with a long-standing business partner Shang-wa. The board of directors at LEI has directed management to pursue a merger with Shag-wa. The pro forma suggests the newly consolidated companies will be in financial distress.
Situation Analysis
Issue and Opportunity Identification
The board of directors LEI sent a letter to management stating a merger with Shang-wa will bring success to the firm and analysis of possible alternative financing options can move forward. Lester can consider several financing options to fund a merger. LEI must decide on methods to finance the merger such as debt versus equity, “provided a company is expected to perform well, debt financing can usually be obtained at a lower effective cost” than equity (Investopedia, n.d., p. 1). Since a merger is “legally straightforward and does not cost as much as other forms of acquisition” it can be seen as an advantage (Ross-Westerfield-Jaffe, 2004, p. 797). However, a merger requires the approval of a majority of stockholders from both companies and this can be risky if the acquired company stockholders do not view the offer as fair market value. Empirical evidence suggests that “mergers benefit the acquired shareholders more than the bidding shareholders” (Ross-Westerfield-Jaffe, p. 824). The shareholders of the acq ...