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Investment Alternative Benchmarking For Lester Electronics

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Investment Alternative Benchmarking for Lester Electronics

University of Phoenix

Introduction

Mergers and acquisitions happen every day. Business deals are made to increase the company’s financial wealth. For large companies these decisions are made at the direction of the board and in small companies these decisions are made by the owners. Whether the decision is made by the board or the owner the goal is the same, increase market share and capital.

This paper will evaluate internal and external growth opportunities; describe working capital management strategies to maximize shareholder wealth; describe the challenges of cross-border growth strategies; assess organizational performance using financial statement and ratio analysis and describe the role of portfolio management in the allocation of corporate resources. The companies that were benchmarked cover thorough course concept are Kmart and Sears, Alcatel and Lucent, ATT and Cingular Wireless, Daimler and Chrysler, BMW, Oracle and PeopleSoft, XM and Sirius, and ExxonMobil.

Internal and External Growth Strategies

Lester Electronics is contemplating the acquisition of Shang-wa Electronics and this is a significant acquisition for Lester. This acquisition will prevent Shang-wa from depreciating by 45% in the upcoming five years. This acquisition will also prevent Lester’s competition, Transnational Electronics Corporation from acquiring Shang-wa. Lester must review companies like Daimler Chrysler to see the downside of growth strategies and review ATT and Cingular to see the positive side.

Lester must implement a business plan that will highlight the upside and downside of mergers and acquisitions if Lester wants to stay ahead of the competition. A wrong move could put Transnational Electronics ahead in sales and market growth. A consultant can assist in this transaction.

Working Capital Management Strategies

Cash management if broken down in three simple parts, opportunity costs, shortage costs and carrying costs are instrumental in operating working capital properly. In this section, there is no better company to review than Chrysler. In the late 1970s Chrysler was on the brink of going out of business. The government tried to assist but Chrysler’s debt was astronomical. Lee Ioccoa came aboard as Chairman and took the company to the highest highs.

Challenges of Cross Border Growth

Daimler Benz expanded cross border when the company acquired Chrysler. Daimler was interested in offering a more affordable car worldwide and Chrysler was the ticket. The challenge here was cultural issues. Daimler’s business practices were European and Chrysler’s were American. The conflicts eventually brought the two companies profits down and the two parted ways. Lester Electronics must focus on Daimler’s cross border growth to be successful in Lester’s growth plan.

Financial Ratio and Statement Analysis

The financial sheet of a company will highlight the financial ration and statement analysis of a company. This information outlines what a company owns, what a company owes and what the costs are that are involved in operating a company. When XM and Sirus merged I am sure this information was looked at thoroughly. Sirius has the exclusive Howard Stern broadcast and XM wanted to increase their numbers. This merger was ingenious and Lester Electronics must look at how these two companies became one if Lester wants to be successful in their acquisition.

Portfolio Management

Portfolios are a wonderful tool when a merger or acquisition is being considered. This information shows a prospective buyer what the purchasing company will attain as part of the acquisition. Portfolios show the company’s investments. In today’s market if securities or bank stocks were part of the portfolio it could show decreased profits. In better times, these securities or bank stocks would have shown stability. When Alcatel and Lucent announced their merger, the revenue discussed was in the billions (Utter 2006.) These companies are much larger than Lester and Shang-wa but the premise is the same, merge, grow and increase wealth.

Michelle Patrick- Kmart

Kmart to acquire Sears in an $11 billion dollar deal in November 2004. The leaders of Kmart and Sears began discussion on merging, to create a deal that would put them in the running with other big retailers such as Wal-mart and Home Depot. Sears knew that they needed to move there business away from the malls to a stand alone or outlet shops to survive the slump that they were currently in. Kmart needed to offer a better product line to the under generation that frequent their stores. Creating the theme “blue light specials” was innovated but not enough with the low prices and the one stop shopping that Wal-mart offers to its customers.

Investors were concerned about the merger because both companies have struggled over the last few years. Like Lester Electronics Inc. in the scenario had to make some decision for the sake of the company. Lester Electronics knew that to stay competitive in a diverse market they would have to compete with companies that have larger resources and capable of buyouts that they would not be able to prevent. Lester Electronics began talks with Shang-wa Electronic about acquiring the company but was unsure of how successful the business would be if they had to assume all the cost of materials to produce the products needed to make a profit.

Sears and Kmart are two of the oldest retailers in the industry, with the strong line of products and service this merger could result in a real challenge for its competitors. “For consumers, the deal means being able to get appliances and other hard goods at Kmart and more clothing at Sears -- and could mean lower prices as the two chains try to compete,” (Bhatnagar, 2004). “We do not want two separate cultures but to blend it into one great culture," Kmart Chairman Edward Lampert. The idea is to make the stores more competitive while staying focused on the customer,” (Bhatnagar, 2004). While Kmart and Sears did nothing wrong when other retailers enter into the market, they just needed to adapt to change as things around them changes.

“Alcatel and Lucent announced their merger, which will form a combined company with a market cap of about $36 billion,” (Utter, 2006). “The

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