Massey-Furguson, 1980 Answers Hbs Case Study

1807 Words Dec 9th, 2009 8 Pages
1. Summary of Massey-Ferguson’s 1971-176 Goals, Strategy and Risk/Return profile

• Focus on small tractors, combine harvesters and industrial machinery
• Exploit markets outside North America and Western Europe
• Dealing directly with governments and public institutions
• Central production of diesel engines in UK

Risk/Return profile:
• Empire Building; engaging in potential negative NPV investments
• Expanding potentially unprofitable divisions (ambitious program of expanding operations)
• Potentially pay too much for acquisitions (ambitious program of acquiring assets; e.g. purchasing Hanomag)
• Make unnecessary capital expenditures (high debt-to-equity ratio)
• Possible hire of unnecessary employees
• Overconfidence;
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Deere shows a stable growth also in difficult market conditions, which indicates that it is a well managed and well positioned company.

Figure 1. Sales during 1976-1980

Figure 2. Operating profit during 1976-1980

Figure 3. D/E ration during 1976-1980.

8. What are the main problems for MF in 1980?
• Worldwide demand for farm equipment at depression level
• 1.5 bln dollar Debt outstanding with 150 banks around the world causing default in beginning in 1981 (and potential bankruptcy)
• International Financial Press reporting possible assistance of Canadian Government

9. What alternatives were available to MF (in 1980)?
• Bankruptcy
• Restructuring with a plan of debt decrease
• Selling assets eg Perkins

10. As a financial advisor what would you recommend (numbers based argumentation)?
Due to steady revenue growth (22% growth 1975-1980) even in difficult financial markets we believe that the business is viable and can be recovered with a strict restructuring program.
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.

• Working capital

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