MRC Inc Case Study

PARINOV Sergei, MANKO Kirill

Acquire or not
Advantages

Disadvantages

ARI had over $20 million in liquid

From the early 1950s rayon began to

assets that were not needed for

operations.
No short or long term debt.
ARI had a modern manufacturing
facility.
The president of ARI was willing to
stay for two years after the
acquisition, to give MRC personnel
the chance to learn the business.

falter as competing synthetics

became popular.
ARI faced earning difficulties with a
shrinking industry.
Acquiring ARI might entangle MRC in
a dying business.
MRCs management lacked the
technical know-how to contribute to
the profitability of ARI.

Motives to acquire ARI

The benefit MRC might get is liquid and
stable funds of ARI holding in forms of
govt. securities. This excess funds ARI
can fuel their diversification drive in
more prosperous sectors which will
have lower business risk and stable
cash flows.

Total ARI value 51 980 K $ (DCF) is higher than 40

000 K $ selling proposal

FCFF
TV
Discount factor

PV (FCFF)

EV
Cash
Equity value
Fundamental value of
shares
Share outstanding
WACC
Growth rate
U.S. inflation
U.S. Long-term treasury
bonds
U.S Treasury Bill Yeild

1961
5517

1962
5803

1
0.91
5021

29392
2564
51980
28.08
1,851
10%
2.6%
1.50%
4.10%
2.70%

1963
5803

2
0.83
4806

1964
4893

3
0.75
4374

1965
4416

4
0.69
3357

5
0.62
2757

1966
3997
47217
6
0.57
2271

1967
3437

Liquidate ARI after acquisition

ARI Value
= working capital + tax benefit + cash equivalents

= 21 mln + 11,4 mln +20 mln = 52 400 000 $

40 000 000 $
=2,7 mln new issued shares * 14,5 $
Before acquisition
EPS
MRC 1,16 $
ARI 1,35 $

After acquisition
EPS
MRC+ARI 1,03 $

Final Recommendations
To continue with acquisition of ARI because of a very

attractive price
To liquidate the company in a short-term prospective
because of absence of operational synergy and negative
prognosis for rayon industry
To use liquid assets of ARI and cash generated in the
process of ARI liquidation for the further implementation of
MRC diversification programm