Massey-Ferguson, 1980
Case Study Solution
Q1) Assess the product-market strategy and financial strategy Massey pursued through 1976. Where possible, compare Massey’s strategy with those of its leading competitors.
Market strategy
Massey is a multinational company and has a series of products. It produces farm and industrial machinery and diesel engines, which contributes to 80% and 20% of sales respectively. The farm and industrial machinery has two product lines: the farm machinery line and industrial machinery line. The former produces tractors, combine harvesters, balers, forage harvesters, cane harvesters, agricultural implements, farmstead equipment and other equipment for agricultural purpose, while the latter produces different
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Competitors
Massey’s competitors were International Harvester and Deere&Company. In 1976, Massey’s market share was 34%, while the other two were 27.7% and 38% respectively. International Harvester had the highest sales and it was also the most efficient in making use of its assets, with a sales/asset ratio of 1.54. Massey was in the middle, doing better than Deere&Company. With regard to financing, in 1976, Massey and International Harvester both had a less than 50% debt/total capital. While till 1980, International Harvester managed to keep the ratio around 50%, Massey had the total debt/capital ratio out of control, with more than 80% debt financing. Neither of the two competitors relied on short term debt such as STD, while Massey relied heavily on STD.
Q2) Assess the various alternatives at the current stage of Massey’s difficulties. What options are available for alleviating Massey’s financial problems?
Given its current financial situation, the following alternatives are available to Massey-Ferguson. a) Merger/Acquisition
A merger offer would raise the stock prices of Massey-Ferguson, if the deal is perceived as synergic for the company in the long run, and would infuse financial resources and flexibility into the company in the short term. In the light of Massey-Ferguson’s negative performance, however, a merger offer from any company seems highly unlikely due to
Since Massey’s stock price has dropped rapidly over the years, issuing new equity is not an attractive option with the low stock prices. Obviously increasing debt is not an option either so the only alternatives for Massey to finance it’s business going forward is to either find savings from it’s Balance sheet and income statement or to sell it’s assets. In below we discuss some opportunities we’ve identified in Massey’s financials.
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