Case summary:

MRC, Inc. is a Cleveland based manufacturing company specialized in power brake systems for trucks, buses, and automobiles; industrial furnaces and heat treating equipment; and automobile, truck and bus frames. As till 1957 most of MRC's sales were made to less than a dozen large companies in the automotive industry, it was exposed to the risk inherent in selling to a few customers in a very cyclical and competitive market. To minimize the risk and to explore new business opportunity MRC's management decided to diversify their business operation. After their fifth successful acquisition, the CEO of MRC Archibald Brinton faced with a dilemma of whether to buy American Rayon, Inc.

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By early 1961 the company’s stock was trading at less than half of its book value. ARI became attractive to raiders with its new found profitability, along with its great liquidity and a disenchanted shareholder group. So the management was seeking to arrange a marriage with a congenial partner. So ARI was brought into attention of Archibald Brinton, who had expressed tentative interest in a deal.
Acquisition Investigation
MRC’s investigation results were mixed. We have highlighted some of the major positives and setbacks found in the investigation.
Advantages:
• ARI had over $20 million in liquid assets that were not needed for operations.

• They had a modern manufacturing facility.

• No short or long term debt.

• The president of ARI was willing to stay for two years after the acquisition, to give MRC personnel the chance to learn the business.

Disadvantages: • From the early 1950s rayon began to falter as competing synthetics became popular.

• ARI faced earning difficulties with a shrinking industry.

• The medium to long term future held continuing decline and eventual liquidation for ARI.

• Acquiring ARI might entangle MRC in a dying business.

• MRCs management lacked the technical know-how to contribute to the profitability of ARI.

So, in a way, acquiring ARI might seem it will help MRC to diversify its operation, but as the sector ARI specialize on, is already dying so, the only