Mebel Doran & Co. Harvard Case Solution & Analysis

Background

Mebel Doran & Co was founded in 1873 as importers, merchants and shippers in Philadelphia. Later on, the company started moving heavily into financial operations as discounters of notes of local tradesman and then started as financial bankers. Additionally, the company started the services of bond and stock market such as Merger & Acquisition and trading services.

Knox Corporation was one of the old clients of Mebel Doran & Co and it was a diversified manufacturing firm. Knox Corporation was intending to acquire Power-Tie Corporation and for that it approached Mebel Doran & Co, which would provide its financial services. The company made a plan for the acquisition of Power-Tie but it was leaked due to the insider trade of Arbitrageur personnel. which resulted in the run-up of Power-Tie’s share price. It ruined the financial position of Knox Corporation.

Key Issues

Internal Compliance

CEO of Knox Corporation had accused Mebel Doran & Co for being a source of leakage of the information regarding the acquisition of Power-Tie Corporation. It was one of the key issues, which resulted due to the internal trading of an arbitrage personnel. Though the arbitrageurs were unaware and wondered if someone else was interested in taking over the company but they inquired about the Power-Tie Corporation. The company had sustained ‘Chinese Wall’ between its Arbitrage Desk and M&A Group. The problem rose with the breaking of wall by M&A Group’s personnel by contacting the arbitrage desk. Mr. Hegarty had believed that an arbitrageur was actively purchasing the shares of Power-Tie Corporation and was almost holding 5 percent of the outstanding equity. Furthermore, it was found that an arbitrageur contacted several security firms to anticipate the share price of Power-Tie Corporation over a week until the issue raised. Due to this issue in the internal compliance of Mebel Doran & Co, the share price of Power-Tie Corporation suddenly raised; which led the acquisition of the company to failure.

Reputation at Stake

Obviously due to the failure of internal compliance, the acquisition of Power-Tie by Knox Corporation got in stake. It damaged the reputation and goodwill of Mebel Doran & Co. Financial provider ‘Mebel Doran & Co’ was a reputed company and had made sustainable position in the market. Due to a flaw in its internal controlling process, the reputation of Mebel Doran & Co had been affected; which resulted in damaging the relationship of new and as well as old clients. Reputation was one of the most important strength of Mebel Doran & Co, which have been affected due to its compliance process.

Liability Issue

Payables to customers had increased up to 107.41 percent, which showed that the reputation of Mebel Doran & Co had dropped and made it a low rated investment banking firm in the market. On the other side, increase in obligations to customers indicated an alarming situation for Mebel Doran & Co and it could be dangerous for the future of company.

Mebel Doran & Co is facing deficit in paying its liabilities. The increasing of debt had raised its interest cost every year with a drastic increase in the year 1984. Increase in gearing ratio was only 2.58% which suggested that the company has ....................................

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Puts the student as a senior official of a major New York investment bank, which finds that the information was leaked to the market in terms of absorption of confidence that is being designed to corporate customers. The official must decide how to handle the situation. There follow handouts, which carry him later points of additional public information. "Hide
by Samuel L. Hayes Source: Harvard Business School 8 pages. Publication Date: June 17, 1987. Prod. #: 287001-PDF-ENG

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