Case Analysis Massey Ferguson 1980

1625 Words Feb 20th, 2015 7 Pages
Case Analysis Massey Ferguson 1980:
Massey Ferguson Limited an International producer of Farm machinery and diesel engine started its operations way back in 1847 and by the end of 19 th century they had operations throughout 31 countries of the world. In 1978 Company had financial loss of US. $262.2 million .

Massey’s Strategies: 1) Product-Market Strategy:
Massey’s product line consisted of tractors, combine harvesters, balers, forage harvesters, agriculture implements, farmstead equipments and other equipment for agricultural use. Industrial line consisted of Industrial tractors, loaders, rough terrain forklifts, skid steer loaders, utility loaders and skidders. In 1980 Massey was holding
17% market share worldwide in tractors.
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Each one of these lenders having debt covenants of their own with the arrangement that if one of these covenants were to be broken all of Massey Ferguson's debt becomes callable. These types of restrictions can impede company financial options during down times (as they did when Massey Ferguson attempted an equity issuance in 1978). The emphasis on short term credit lines was also a questionable choice of finance structuring. Expansionary/market penetrating strategies typically pan out by taking losses in the short term in order to realize larger gains in the long term. Along with an expansionary strategy, Massey Ferguson was also increasing spending in R&D for production of higher horsepower tractors to market in North America and for diesel engine production.

What went wrong? 1) Market-wide problems:
High interest rates after the 1973 oil crisis and the 1979 energy crisis, the US economy was affected by stagflation. In an effort to fight excessive inflation, the Fed adopted a tight monetary policy, raising interest rates (as an illustration, the federal funds rate increased from 11% in 1979 to 20% by June 1981).This affected all players as it led to a plunge of stock market prices, on the one hand, and an economic recession, on the other. Furthermore, Massey was particularly hit hard: since it mainly financed its operations with short-term debt, its financing cost went up

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