Mrc Case Essay

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MRC Case Study By: Devorah Serkin, Dan Saguy, Romy Ribitzky, Shimon Zlotnick MRC Inc.• MRC is a Cleveland based manufacturer of car parts• The business plan is based on rapid diversification by new acquisition to: o keep themselves from becoming exposed to risk o Stabilize earnings and cash flow o Escape threat of backward integration by car manufacturers• Currently overleveraged and need cash quick to continue their strategy o Currently, long term debt for MRC is $22.7mm• Achieve management of many acquired companies through decentralized management o 7 divisions run by department heads who oversee operations and report to MRC owner ARI Inc.• American Rayon Inc (ARI) is a Philadelphia based corporation.• Third largest producer of Rayon in the United States• Rayon is currently used in tire production, though market share in tires is decreasing yearly (as of 1960, only 64% market share) Rayon’s market share in tire production Million Market Yearly year pounds share change 1955 406.9 86% 1956 343 83% -3% 1957 318.5 77% -6% 1958 233 71% -6% 1959 287.1 70% -1% 1960 251.3 64% -6%• Has $20mm of liquid assets not needed for operations that can immediately be sold upon purchase View slide Pro and Cons• Pros to acquisition • Cons to acquisition o $20mm in liquid assets o Company is losing market which MRC needs to share offset their debt. o Recent return to o Allows MRC to continue profitability due to with the strategy of reduction of cost rather diversification than increase in sales o Increases credit o Dying company with no worthiness long term future prospects o Stabilizes cash flows o Large company may not o Undervalued company fit with MRC’s costs them $40M in management model common stock View slide MRC Inc.• Assumptions for DCF calculations of ARI: o Numbers are in real terms. Depreciation has been adjusted to reflect the actual inflation rates between 1961 and

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