Mrc, Inc Case
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What are the key elements of MRC, Inc.s corporate strategy?
Answer:
Operational – Diversification of MRC product line through acquisitions of new companies in order to stabilize earnings and lessen vulnerability to tech. changes in single industry,
Structural – Decentralized management structure where most decisions handled at the division level, with an adequate corporate control system
Financial – Wise use of debt in order to not hurt the leverage and p/e ratio.
Would MRCs strategic interest be advanced by the acquisition of American Rayon, Inc. (ARI)? If so, why?
Answer:
MRC is considering the acquisition of ARI as investment bankers had pointed out that long term lenders would probably insist on severely restricting the companies flexibility to make cash acquisitions even if it should prove feasible to raise new debt.
With MRC near its debt limit and the P/E ratio around 10 the diversification strategy was in danger of collapsing. Acquisition of ARI, with its 20 million in liquid cash with no debt would help MRC improve its leverage/debt ratio.
Therefore MRCs interest will be advanced by the acquisition of American Rayon, even though its a declining company, in order to maintain or accelerate its acquisitions strategy.
See attached excel sheet.
Is MRCs management control system well suited to handle ARI?
Answer:
Based on 1960 data, ARIs activity is approximately half the size of MRCs and a purchase of that size is unprecedented.
Though MRCs new management structure could assist, yet the high control over the budgeting system will cause an overload of assessmentapprovals activity for the HQ financial staff, which should be taken into account.
In summary, though the decentralized structure is intended to reduce the burden, and though the control system seems well built and classified, the size of ARI should be taken into account as it will require further overhead expenses massive time consumption of the HQ management, that are somehow needed to be taken into account assessing ARIs contribution to MRCs corporate.