FROM: Preferred Stock A Shareholders
DATE: September 28, 2010
SUBJECT: Evaluation of Massey Ferguson LTD
RELEVANT INFORMATION FOR SHAREHOLDERS
Massey-Ferguson controlled 17% of the tractor, 14% of combines, and 13% of industrial machinery sales in the world. Despite dominance in market, Massey had an income loss of 225 million in 1980 and a net income loss of 256.7 million in 1978. During their attempt at expansion during the 70’s, Massey had a D/E ratio of 214%. These were mainly from short term, meaning these were current liabilities that had to be paid within the current operating cycle. Managements attempt to bandage losses only slowed the imminent deterioration of shareholder value. By 1979, shareholders lost $2.38 per share due to losses on continuing and discontinued operations. Poor decisions by management in the areas of debt structure, market penetration, market positioning and an inability to match production with sales in Third World countries helped attribute to loss in shareholders’ value. Another component of their mismanagement was several debt covenants entered which prohibited Massey from issuing any new preferred stock to pay off short term debts and invest in capital projects.
Argus Corporation owned a controlling interest in Massey-Ferguson and had 50% control of the Board of Directors. The refusal of Argus to take a block of shares, and several statements released by Conrad Black demonstrated a no confidence in Massey, also contributing to the devaluing of stock. From 1976 to 1980, Massey lost 69% of market value.
Recommendations for Massey-Ferguson
We believe that the company should continue but with a restructuring of management. Shareholders need to vote for a takeover of Massey-Ferguson. Argus not only holds 16.5% of outstanding shares but 33% of Board of Governors seats in Massey. The last two of the three years Massey has sustained net income losses close to 500 million. Over a three and a...