Massey Ferguson Case

Assignment Questions:

1. Assess the product market strategy and financial strategy Massey pursued through 1976. Was its product market strategy more or less risky than that of its competitors? Was its financial strategy more or less risky than that of its competitors?

2. What went wrong after 1976? How did these events affect Massey operationally and financially? What are the signs of stress on its income statement and balance sheet?

3. How did Massey respond, both operationally and financially, to these negative events? How did its competitors respond? What were the consequences for Massey?

4. Given its current difficulties, what options does Massey have for alleviating its financial problems? Consider how Massey’s difficulties affect all interested parties: shareholders, lenders, employees, governments, and management.

5. Why, fundamentally, did Massey get into financial trouble? What alternative actions by management would have reduced the severity of Massey’s financial difficulties?

1. What are the primary business risks associated with UST Inc.? What are the positive attributes of UST Inc.? Evaluate from the perspective of a potential lender. How might this perspective differ from that of a shareholder?

2. Why is UST planning to buy back shares with its borrowed money (i.e. it could have elected to borrow $1 billion without buying back shares…without the share buy back, would the borrowing affect the company any differently?)?

3. Should UST undertake the $1 billion recapitalization (i.e. borrow $1 billion and buy back shares)?

You may find the following analysis helpful in making your decision (assume the tax rate is 38%, the entire recapitalization is implemented immediately (January 1, 1999), and the debt is held in perpetuity):

a. Prepare a pro forma income statement