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Lester Electronics

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Situation Analysis and Problem Statement: Lester Electronics Incorporated

March 7, 2006

MBA/540 Maximizing Shareholders Wealth

Robert Woerner / Phoenix Dallas Main

Situation Analysis and Problem Statement

The purpose of this paper is to analysis the issues related to Lester Electronics Incorporated. Lester Electronics, Inc. should look at their situation and options regarding the takeover by Avral Electronics, S.A. and Shang-Wa do the same regarding the hostile takeover by Transnational Electronics Corporation. Lester Electronics, Inc. and Shang-Wa's issues are related to the financial history of the corporations and the John Lin wanting to retire, which led into the current problem of other corporations wanting to take over the companies. First, to understand the problem, one needs to understand the situation surrounding these two companies.

Situation Background (Step 1)

Lester Electronics, Inc. entered into an exclusive U.S. distribution contract with Shang-Wa Electronics, a small Korean manufacturer of capacitors in 1978. The agreement and relationship has stood valiantly for 35 years, however now John Lin, the Shang-Wa founder is looking at a hostile takeover by Transnational Electronics Corporation. Ironically, Avral Electronics, S.A. is trying to takeover Lester Electronics, Inc. Both companies have done well for years, but want to access their future and ability to survive a takeover. But first, they need to identify the issues and opportunities.

Issue Identification

There are two issues facing Lester Electronics, Inc. First, Shang-Wa, who provides more than 40% of the company's product, is facing a hostile takeover. What happens to Shang-Wa will affect Lester Electronics, Inc. The second issue is the attempted takeover by Avral Electronics, S.A.

There are two issues facing Shang-wa. First, is there isn't anyone to take over the company should John Lin decide to retire. The second is the hostile takeover attempt by Transnational Electronics Corporation.

Opportunity Identification

Lester Electronics, Inc. has several opportunities. They stated doing nothing is not an option. First, they could fight the takeover and strive to maintain the relationship with Shang-wa Electronics. Second, they could attempt to buyout Shang-Wa Electronics. Third, they can develop a business relationship with another capacitor provider. Fourth, they could cave to the takeover by Avral Electronics, S.A. According to Rajeeva Sinha in Applied Financial Economics: The incidence of hostile takeovers as a percentage of all takeovers is significantly higher in the UK than in the USA. Figures for 1985-1989, the start year of the sample used for this study, show that that hostile takeovers as a percentage of all attempted transactions was 37.1% for the UK, 17.8% for the USA and 9.6% in Europe respectively (Prowse, 1994).

Shang-wa Electronics also has several opportunities. First, they can do nothing and continue the relationship with Lester Electronics, Inc. This would keep John Lin unable to retire. Second, they can accept the hostile takeover bid by Transnational Electronics Corporation. Third, they can sell out Shang-wa to Lester Electronics, Inc. The opportunities do have ethical dilemmas attached.

Stakeholder Perspectives/Ethical Dilemmas

The key stakeholders of both companies include the boards and CEOs, the employees, the customers, the potential new employees, the stockholders and Avral Electronics, S.A. and Transnational Electronics Corporation. The board and CEOs have the right to make decisions they believe are in the best interest of the corporation, even ones some people might find ethically challenging. Closing the business or accepting a takeover offer impacts the business and the



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