Gap Analysis: Lester Electronics Lester Electronics Inc. (LEI) is an industrial and consumer electronics distribution company that markets its products to small, local distributors throughout the 'North, South and Central America and Europe. The company also sells to small and medium-sized original equipment manufacturers and repair facilities. In 1978 LEI entered into an exclusive distribution contract with Shang-wa Electronics. Lester Electronics (LEI) and Shang-wa have collaborated for almost 35 years. SHE faces the decision to align with Shang-wa Electronics to establish a new capacitor manufacturing plant in a nearby Asian country, acquire Shang-wa outright, or sell the company to Avral Electronics, Inc., (University of Phoenix , 2007). “The issue translates into an opportunity to increase revenue through sources of synergy: increasing revenue, reducing costs, reducing taxes, and reducing the cost of capital” (Ross, Westerfield, & Jaffe, 2005). Clearly, the company must carefully study the options and make a timely decision in order to maximize wealth for its shareholders. The owners of these two companies are also close friends. As entrepreneurs they worked hard to increase market share, maximize profits and ultimately share their success. Difficult decisions will have to be made especially now that Lester's boards of directors have given the green light to the merger with Shang-wa. A hostile takeover looms on the horizon and LEI cannot afford to sit on the sidelines and sit idle as 40% of its revenues and products come from Shang-wa. The board asked the leadership team to move forward with a funding recommendation. Analysis of the situation. Identification of problems and opportunities. The main problem Lester faces is fending off the hostile takeover that Transnational Electronics Corporation (TEC) is proposing to Shang-wa. If TEC takes over Shang-wa, Lester will lose its key supplier and will ultimately be harmful. Shang-wa also realizes that if she doesn't cooperate with TEC the situation could turn hostile. After Shang-wa was contacted by TEC, John Lin went directly to Bernard Lester to propose a partnership or joint venture agreement. John Lin eventually wants to retire and since he doesn't have a successor he wants the company to be in good hands and for Lester to continue to have their key supplier. Lester will have to do his own research and perhaps convince Linn that a merger is the best alternative to a partnership. The executive team will need to review operational exposure and currency exchange rate fluctuations. Lester will also have to determine whether they have the financial ability to complete the merger.