Like America Online and Time Warner, Lester Electronics, Inc. and Shang-wa Electronics management teams need to carefully guide analysts to think about the synergies as a tri-level package: tactical, strategic and transformational. Lester Electronics, Inc. needs to be prepared for an increase of corporate expenses and an increase in merger and restructuring costs. LEI is in a hurry to merge with Shang-wa. When performing due diligence, LEI's research data should include not only Shang-wa's financial history but how the economic market will hold up between the merger and whether the company will continue to generate more business, and longevity in the market.
LEI and Shang-wa may benefit from pooling their resources both financially and otherwise. If the companies go through with the proposed merger, there will be differences in how money is allocated. LEI and Shang-wa should look to the example of Kobe Steel and figure out a pooling method that will consolidate each division's balances into one account.
The consolidated funds, if positive, can be distributed among the divisions for investments, capital purchases, or other business needs.
The purchase of Redback Networks by Ericsson is a similar situation to Lester Electronics and Shang-wa. Ericsson purchased the manufacturer of a product that was needed to grow into the future. Some issues that are common in these types of mergers are the financial obligations of the parent company and retaining current employees' morale throughout the organization. If the acquiring company cannot maintain the employees throughout the purchase, the parent company faces the problem of producing a lower quality product and higher training costs for new employees.
Bernard Lester should learn from DoCoMo's mistakes. Not all investments are wise decisions from a business perspective. John Lin wants Bernard Lester to take over Shang-wa completely. In theory, the merger would make sense; however,