Issues And Opportunity Growth

Running head: ISSUES AND GROWTH OPPORTUNITIES

Issues and Growth Opportunities

Issues and Growth Opportunities

Corporate mergers and acquisitions are a mainstay of the business world, and among those often in the limelight are companies of the technology industry. The pace of the technology industry is among the most rapid; companies race to develop and rollout products in order to surpass their competitors. Shang-wa Electronics, and Lester Electronics, Incorporated are currently engaged in the tug and pull of mergers and acquisitions as each have recently been approached by separate industry giants seeking to either merge with or purchase outright. Both Shang-wa and Lester are relatively smaller than those that are trying to acquire them; however, Shang-wa is the most vulnerable to becoming the victim of a hostile takeover by the Transnational Electronics Corporation (TEC), due to Shang-wa’s failure to have a succession plan as the company’s founder and CEO’s impending retirement. In order to understand what the Shang-wa and Lester companies are facing, additional research has been conducted on two separate attempts at mergers or acquisitions of companies in the electronics industry.

Microsoft and Yahoo! (and Google?)

It is hard to believe that a corporation with earnings of $1.38 billion in the first quarter of 2008 alone is considered a small player among its competitors; however, this is how those in the electronics industry view Yahoo! Corporation (Heiskanen, 2008). Since 1997, Microsoft has acquired over 93 companies, so the unsolicited takeover offer that Microsoft made to Yahoo! on February 1, 2008 was not too surprising to those in the electronics industry. Microsoft’s bid of $44.6 billion, or $31 per share, which was almost 62% over the pre-offer trading rate of $19.18, was turned down by Yahoo! claiming the bid was too low, to which Microsoft hinted the potential for a hostile takeover (Kopytoff, 2008).

History

Microsoft

The technology giant began in 1975 when the brainchild of friends William H Gates, III and Paul Allen introduced the company’s founding product, the first programming language for the Altair 8800 microcomputer, called the Altair BASIC (Wikipedia, 2008). History was made; however, when Gates was able to convince the International Business Machines Corporation (IBM) to allow his company to develop and implement an operating system for IBM’s new personal computers (PC). One source states this deal provided Microsoft with, “one of the most powerful revenue streams in the history of American business” (Tate, 2000, para. 9).

Microsoft’s growth accelerated at a phenomenal rate, as did the company’s net worth. As reflected in the organization’s bottom line, the release of consumer-friendly Windows 95, on August 24, 1995, was another significant milestone attained by the dominating company (Wikipedia, 2008). In September of 1995, Microsoft’s short-term investment and cash portfolio totaled $5.1 billion. The company did not have any material long-term debt, and had $70 million reserved in multinational currency lines of credit. According to the 1995 Quarterly Report filed with the United States Securities and Exchange Commission (SEC), Microsoft had historically funded its operating needs solely by the income generated from operations and short-term investments, and planned to continue doing so. The corporation did not payout dividends, and the stockholders’ equity was over $5.7 billion (Microsoft Corporation, 1995).

The corporation’s continuing success was largely due to the visionaries that led the conglomeration. As technology advanced, and consumer demand for new and innovative products grew, so did Microsoft’s mergers and acquisitions with over 93 acquisitions over the course of 30 years, as previously mentioned. With a history of maintaining the number one status in their industry, there is one area in which Microsoft has conceded it may never dominate online advertising and media resources (The Economist, 2008). That was, until Yahoo!.

Yahoo!

Yet Another Hierarchical Officious Oracle!, also known as Yahoo! is the result of two students’ hobby and ultimate desire to develop a means of keeping track of their personal internet interests. The Stanford University students’ names are David Filo and Jerry Yang, and the year was 1994. After only eight months, following Yahoo!’s one millionth hit on their website, Filo and Yang recognized the potentiality of their project. In March 1995, the launch of the newly found corporation was made possible by an initial investment of $2 million by venture capitalist, Sequoia Capital. The organization continued to grow and is currently a leader in the global Internet communications, media and commerce industry. The Internet site was the first online navigational guide on the World Wide Web (WWW), and has the largest audience worldwide, and is the number one globally recognized Internet brand (Yahoo!, Inc., 2005).

Comparing Microsoft with Yahoo!’s financial specs is like comparing apples to oranges. However, the company’s reported 2007 revenue increase of 8% from 2006, at $6,969 million, is not the appealing factor to Microsoft (Yahoo!, Inc., 2008). Yahoo!’s considerable pool of skilled and talented Internet-savvy technology experts along with its predominant global brand recognition are two components of the long-term benefits that Microsoft hopes to gain from the acquisition.

Friendly Negotiations or Hostile Takeover?

With Microsoft’s obvious determination to acquire the company, coupled with their insinuations of a potential hostile takeover, one might wonder, what alternative does Yahoo! have other than to accept Microsoft’s offer? Following Microsoft’s generous offer, and subsequently Yahoo!’s rejection, industry giant and Microsoft’s most dangerous competitor, Google, began its campaign to save the company from Microsoft’s grips. Due to antitrust laws, it is not feasible for Google to attempt merging with Yahoo!; however, the two could strike a deal wherein Google would guarantee advertising revenue on Yahoo!’s search engines. This alternative would also enable Yahoo! to remain independent