Mba540 Lester Electronics Alternative Benchmarking Team Paper

2727 words - 11 pages

Lester Electronic Alternative Benchmarking PAGE \* MERGEFORMAT 4
Running head: LESTER ELECTRONIC ALTERNATIVE BENCHMARKINGLester Electronic Alternative BenchmarkingShauntel Bennett, Russell Brevick,Dawn Coffinberry, and Willisha SladeUniversity of Phoenix"A word to the wise ain't necessary -- it's the stupid ones that need the advice." Bill Cosby is credited for these words and many other funny and memorable phrases. You may be asking, what does this quote have to do with the Lester Electronic Alternative Benchmarking paper our team is presenting? You will have to wait and see. The purpose of this paper is to give you the results of our team's benchmarking. A quick overview will get you up to speed.There are many opportunities for several companies in the Lester Electronics scenario. Lester Electronics, Inc. (LEI), Shang-wa Electronics, Avral Electronics and Transnational Electronics Corporation (TEC) are all on the warpath to arrive or to drive on the highway of success. Potential merger, hostile take over, general partnership, and acquisitions are all possible outcomes of this business soap opera in the making. LEI was founded by Bernard Lester in 1978. Since then he has had over three decades of a successful business relationship with his exclusive parts distributor, Jon Lin of Shang-Wa (Scenario, 2007). Jon Lin was approached by TEC CEO, David Antone with his interest in the acquisition of Shang-Wa.This would cripple LEI since almost half of their future five-year revenues would be dangling like bait in front of a hungry shark. If TEC takes over Shang-Wa, LEI would be up the creek and their long-term agreement would be like dust in the wind. To add to the drama, Robert Paget of Avral Electronics is jockeying for position for the acquisition of LEI (Scenario, 2007). With so many possible directions, LEI has proposed a merger with Shang-wa as their best course of action. This would not only keep the business agreement and partnership with Shang-wa functioning, but it would offer Jon Lin with the assurance that the business he built would remain in good hands, the hands of his friend, Bernard Lester. Team D will provide a summary of the chosen benchmarked companies that were researched, compare and contrast issues identified in the scenario that these companies faced as well, note the company response to the issue, and the outcome.Risks associated with investment decisions (Willisha Slade)When dealing with risk associated with investment decisions, no organization is exempt. Companies like Comcast, AT&T, Bank of America, MBNA, K-Mart, Sears, Sony, McDonalds, JP Morgan and Allianz Global Investors definitely knows what it means when taking a risk. Even Lester Electronics and Shang-wa knows what it means to take risks. The organizations first took their risk when it came time to consider merging with another organization. Issues like how dependable the other organization is and if they will fall through on their part of the deal is a risk that could be very costly. It could turn costly if people don't fall through because the organization's profits will decrease putting them in an even worse situation than they might already be in.Comcast has s $44.5 million dollar offer for AT&T Broadband. If Comcast decides to make the investment decision with AT&T the risk that are involved would be that AT&T does not come through with the offer or even decides to give the money at their own convenience. If AT&T gives the money that may lead Comcast to grow irritated and may not work to their potential. Bank of America, MBNA, JP Morgan and Allianz Global Investors are all-familiar which investment decisions in the fact that investment money is something that they offer to their many customers. So when it came time to merger with each other, both organizations knew exactly what to look for in each other in order to make an investment decision. Bank of America and MBNA are looking to enhance their working capital management and profitability ratio. K-Mart and Sears made the decision to invest in each other (D'Innocenzio, 2007). The risk in this merger is the Martha Stewart scandal. After the deal with Martha Stewart, people eventually stopped being buying her products. Profits in the organizations went in a roller coaster with could turn either positive or negative. Sony and McDonalds are both companies that whatever they investment decision they make they are able to bounce back. The companies tend to investment in other organizations, as either a sponsor or partnering up with other organizations to sell their products. The risk involved with Sony and McDonalds is the other organizations taking advantage of them because of their name and they tend to slack off. Lester Electronics risk in investment decision-making is pretty crucial. They already know that if they do not merger with Shang-wa that they will lose 43 percent of their revenue in the next five years (Scenario, 2007). Knowing this and the fact that there are other potential manufacturers, Lester Electronics is risking the fact that they may actually have to explore another option. Shang-wa has a lot on their plate in the fact that they are receiving different bids from other organizations. They will be risking merging with other organizations and in hopes that they will not freeload off their organization to increase profits for theirs. Although Lester Electronics and Shang-wa have merged, there is still that risk that, although there is a solid friendship between the two, that someone may slack.Weighted Average Cost of Capital (Dawn Coffinberry)A company's assets are financed by either their debt or equity. The Weighted Average Cost of Capital, WACC, is the average of the cost of these sources of financing, each of which is weighted by its particular use in a given situation. With the WACC one can see how much interest the company has to pay for every dollar it finances or it can be used to conclude the economic feasibility of any opportunities for expansion or mergers (investment dictionary).Kmart and Sears over the years have become well-known discount retailer stores. The first Kmart store was opened in 1962 but back then was known as Kresge stores, named after the founder, Sebastian J. Kresge, in Detroit Michigan and then became known as Kmart in 1977. Over the years Kmart has moved to the bottom of the list of discount retailers and in 2003 filed bankruptcy. Richard Sears opened his first Sears Watch Company store in 1886 and then changed the name in 1887, to Sears, Roebuck and Co, to include Alvah Roebuck who is the name of his first watch repairman that he hired that same year. Originally they were a mail order catalog business that just sold watches and jewelry and then later moved into selling a plethora of items. The first retail store was opened in 1925. By 1941 Sears had over 600 stores. The years between the 1940's and 1970's only saw continued expansion of Sears in both the United States and into Canada and Mexico (searsarchives.com). In the 1990 Sears saw a decline in their revenues, fell into second place behind Wal-mart (retailindustry.about.com).These two companies who once were fierce rivals were now in the same situation and came to the conclusion that the best solution to keep their market shares, increase their cost of capital and keep the essence of their business in the retail industries was to join forces. The directors had to determine the economic feasibility of the merger and most have concluded that joining both their assets together would be beneficial to them, because on November 17, 2004, they merged. By pooling together both Kmart and Sears' well developed private brands, they may be able to solve the brand image that had eluded them both during their own individual histories (retailermerchandiser.com) by sharing their products within each store. This stronger brand image and credibility will then be easily marketed to an audience that neither Kmart nor Sears could reach before the merger (D'Innocenzio, 2004). The merger will either make or break these two companies. Their failures in the past are lesions learned and yet without establishing a business strategy that combines the two so different infrastructures they could still fail even with the merger and it would be said that they did not learn anything from them.Lester and Shang-wa can look at these two companies and learn from them, because if they are able to stay on top as a competitive discount retailer store and are able to combine these two so different companies into one successful company they would indeed be a company to learn from.Dividend Policy in Wealth Maximization (Shauntel Bennett)When most organizations earn profits, a sound business decision must be made about how to handle those profits. Many firms use those profits to pay dividends to their shareholders. In the developmental stage of a dividend policy, it is important to consider factors such as profitability, payout ratio, and financial conditions (Hitachi, 2007). Implementation of this procedure helps give the company a positive reputation with its investors and represents a solid financial foundation. The optimal dividend policy is the one that maximizes the firm's value (Garrison, 2007). Creation of a dividend policy often generates a sense of loyalty between the business and its stakeholders. It is important that this policy also provide a framework for relations, with principals that govern dividend determination and distribution, as well as the company's responsibility for dividend payout (Deloitte & Touche, 2007)As a leader in the financial services industry, J. P. Morgan Chase has a dividend policy in place. On September 17, 2002, J. P. Morgan Chase declared they would pay dividends quarterly as long as their capital ratios remain strong and prospective earnings exceeded the current dividend (JPMorgan Chase & Co., 2007). They began this policy by paying .34 per share of outstanding common stock. At this point, they have set a financial standard, in the eyes of the investors, for the organization. Should this current policy ever change in a negative manner, this will cause a red flag and the stakeholders will become leery of the economic health of the business. With the organization serving over 30 million consumer customers, it cannot afford the development and effects of a destructive reputation. It will be imperative that as an organization, they continue to focus on areas of concern such as productivity and wealth maximization in order to avoid any damaging changes to their current dividend policy. This is no different for LEI. Their future success is depending on their ability to properly forecast, manage the merger, and without a doubt, focus on their productivity and wealth maximization in order to avoid any damaging changes to their current and future dividend policy.Over the last five years, J. P. Morgan Chase has maintained consistency as it relates to their dividend policy. They continue to pay a quarterly .34 per share dividend to their current shareholders. Although there have not been any changes, the result is still positive and stakeholders can remain confident of the financial ability of J. P. Morgan Chase. Throughout the next few years, the corporate financial group may give this area more attention to discover ways to enhance the existing dividend policy, which may help attract new shareholders and maximize wealth.General Mills, who is the sixth-largest food company in the world, has proven experience as it relates to dividend policy. "We think General Mills is well-positioned to deliver low, single-digit growth in net sales, mid single-digit growth in operating profits, and high single-digit growth in earnings per share" (Sanger, 2005). This has proven to be the motto and focus of this organization for quite some time. For the last 106 years, General Mills has never experienced an interruption or decrease in paying dividends to their shareholders. Throughout this timeframe, there have been several increases in payout levels due to the continuous improvement efforts adopted by General Mills. Due to the stability shown by this organization, they will continue to retain current shareholders and attract new ones.Though the two aforementioned organizations chose to pay dividends on a quarterly basis that is not the only option that is available. Over many years, Progressive Insurance has paid out a fixed quarterly dividend to their shareholders. In February 2006, the Board of Directors approved a plan that would change the policy terms to an annual variable payout. The institution of this effort will better align Progressive's capital policy with its business model (Progessive, 2007). Although this change has taken place, there is not a need for current stakeholders to be alarmed because the change is not one that represents negativity. This proactive approach will help increase leverage for the business and will create more consistency as it relates to dividend policy.ConclusionOne of the main goals for a business should be to attain success. The road to success can seem extra longer for some businesses, but, whenever and however it happens, the arrival of success has a sweetness that satisfies and answers the question, was it worth it? There are many important decisions that need to be made by LEI as they journey towards the merging of their company with Shang-wa. The foundation of this class is to teach us the keys to maximizing shareholder wealth and these four companies are doing just that. They are trying to put themselves into position to reach their full potential. By benchmarking our teams companies outlined above, LEI can learn from the past failures and successes of others. Now, to answer why the Cosby quote was added to the paper. Besides the fact that was funny and a great attention grabber, it is true. We all have the potential to learn from our own mistakes, however learning from the mistakes of others tends to be wiser route to take.Reference:Applied finance A, (2007) retrieved May 13, 2007 from: www.studyfinance.comD'Innocenzio, A. "Kmart to Acquire Sears in $11 Billion Deal" Associated PressOnline November 17, 2004. Academic Universe: Business. Lexis-Nexis. UNL Lib. May 13, 2007.D'Innocenzio, A. & McCann, H. "Skepticism Persists on Kmart-Sears Merger"Associated Press Online November 232004. Academic Universe: Business. Lexis-Nexis. UNL Lib. May 13, 2007.Deloitte (2007), Audit, Tax, Consulting, Financial Advisory, Retrieved May 13,2007 from: www.deloitte.comGeneral Mills (2007) retrieved May 13, 2007 from: www.generalmills.comHitachi Inspire the Next,(2007) retrieved May 13, 2007 from: www.hitachi.comJpmorgan (2007), retrieved May 13, 2007 from: www.jpmorgan.comKmart Corporate History, retrieved May 13, 2007 fromhttp://www.kmartcorp.com/corp/story/general/corporate_history.stmProgressive (1995-2007) retrieved May 13, 2007 from: www.investors.progressive.com"Retail Consolidations" Retrieved May 13, 2007 from www.Retailindustry.about.comRoss, Stephan A. (2005). Chapter 1: Corporate Finance (3rd ed.): New York: McGraw-Hill.Sears Archives retrieved May 13, 2007 from www.Searsarchives.comWeighted Average Cost Of Capital - WACC retrieved May 13, 2007, from:http://www.investopedia.com/terms/w/wacc.aspWeighted Average Cost Of Capital - WACC, Investment dictionary, retrievedMay 14, 2007, from: http://www.answers.com/topic/weighted-average-cost-ofcapital

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