Massey Ferguson

Massey-Ferguson Case Questions

Address the following questions in a 4-5 page write-up of the Massey-Ferguson Case to explore how financing and business decisions are linked:

1) Assess the product-market strategy Massey pursued through 1976. Compare Massey's strategy with those of its leading competitors. How successful and sensible was their product market strategy through 1976?

2) Characterize and assess Massey's financial strategy from 1971-1976. Did it complement the product market strategy? How did their financial strategy compare with their competitors? How sensible was their financial strategy? Should they have had a lower or higher leverage? Do you approve of their debt policy? Explain.

3) What went wrong after 1976? Review macro, industry, and firm factors.

4) How did Massey respond? How did its competitors respond? What were the consequences for Massey?

5) Assess the various alternatives at the current stage of Massey's difficulties. What options are available for alleviating Massey's financial problems? How could Massey be extricated from financial distress?

6) As a financial advisor to Massey's management, what refinancing plan would you propose? Give particular attention to the various interested parties: shareholders, lenders, employees, governments, and management.

7) Why, fundamentally, did Massey get into financial trouble? Were a refinancing plan successfully executed, what would be the outlook for Massey's future? What alternative actions by management would have reduced the severity of Massey's financial difficulties?

8) If you were Deere in 1981, what strategy would you pursue?

9) Summarize this case by explaining why the capital structure decision mattered so much in this industry.

Capital structure case: Massey-Ferguson Ltd (1980)

This case seeks to discuss the determination of a target debt policy consistent with business risk and competitive risk, exploring the difficulties encountered by a firm with too much debt for the risk level of its business. The case also addresses the concept of financial restructuring.

Questions for advance preparation

a. Assess the product-market strategy and financial strategies of Massey-Ferguson. Were these strategies consistent? Consider the choice of long-term versus short-term debt as well as the debt-equity choice.

b. Compare the financial structures of Massey-Ferguson, International Harvester and John Deere.

c. Did their financial structures affect their abilities to compete in the product market?

d. Why did Massey have so much short-term debt?

e. What alternatives are available for alleviating Massey-Ferguson’s financial problems? Can Massey issue equity?

Description:

Massey Ferguson began fiscal year 1981 in default on $2.5 billion of outstanding debt. The company's future depends on the ability of lenders, the governments of Canada and Ontario, and management, to agree on a refinancing plan. The case reviews Massey's performance and position in the industry and raises questions about the company's ability to compete in the long run. Provides information on the firm's claimants in order to focus students on the issues of a refinancing.

Subjects Covered:

Bankruptcy, Financial planning, Financial strategy, Machinery, Recapitalization, Short term financing.

Massey-Ferguson, 1980

General Guidelines

1. The case is conceptual. No complex calculations are required. Throughout the case, it is important that you compare all three firms in the industry and discuss how their strategic interaction changes.

Questions

1. Assess the product-market strategy and financial strategy