Lester Electronics Financing Alternative Benchmarking

Lester Electronics Incorporated (LEI) is a consumer and distributor of electronics parts. Currently LEI markets its products to small and medium sized original equipment manufactures, repair facilities and small local distributor throughout the Americas and Europe. LEI have revenues of approximately $500 million a year and are traded on the NASDAQ. 43% of LEI’s revenues are contingent upon an exclusive United States distribution contract that LEI has in place with Shang-wa Electronics, a small Korean manufacturer of capacitors. Recent events that include the threat of a hostile takeover of Shang-wa by another corporation directly threaten the continued exclusive right that Lester has to sell Shang-wa capacitors in the United States. If Shang-wa is purchased by another company, LEI could see a 43% negative impact to LEI’s revenues over the next 5 years. After careful consideration, Shang-wa Board of Directors has approved a plan to move forward on proposing a merger with Shang-wa and the board has asked the Executive Leadership Team to provide some possible alternative financing options.

(Lester Electronics, 2008).

The following paper discusses areas that need to be taken into consideration relative to the financial decisions that LEI is attempting to evaluate relative to the potential merger with Shang-wa including determining the weighted average of cost of capital; recommending a financing mix that optimizes capital structure; analyzing risks associated with investment decisions and evaluating dividend policies on wealth maximization.

This paper further benchmarks companies that have been faced with similar scenarios, and discusses how those companies have responded and the resultant impact to each.

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