Massey-Ferguson has been in the farm machinery business since 1847. It grew into one of the largest multinational firms in the world, with operations in over thirty countries throughout the world. Unfortunately, Massey-Ferguson financed its expansion mainly by use of debt and short term credit. Mano-Will Consulting analyzed Massey-Ferguson’s financial statements and conclued that its history of ambitiouus acquisitions and expansion had brought it to financial distress by 1980. In the 1970’s, Massey-Ferguson financed much of its growth using short term debt. In contrast, its competitors maintained debt/capital and STD/capital percentages much lower than Massey-Ferguson. When the economic recession of 1980 depressed markets and reduced demand for farm machinery to depression levels, Massey-Ferguson found itself in the financially distressed condition it was in and unable to compete with its major rivals in the industry. Mano-Will consulting proposes that Massey-Ferguson implement a solution to its current condition in order to remain viable in the industry. Mano-Will proposes that Massey-Ferguson Consolidate smaller loans of the remaining lenders to a select few larger lenders. Furthermore, we recommend that Massey-Ferguson raise new cash. It must eliminate operations in less profitable markets, liquidate its financing subsidiaries (except in North America), and instead, work with governments to provide financing options for its customers. Lastly, it must shift the majority of its operations from the UK to Canada. We recommend Massey-Ferguson initiate these solutions by first forming a committee that will be in charge of its restructuring/refinancing. The committee will develop strategies to identify those markets that will retain operations and those parts of the business that will be eliminated. The committee will conduct a SWOT and Cost/Benefit analyses to determine the areas of focus and divestiture. As with any corporate restructuring stategy there are risks. Massey-Ferguson risks uncooperative lenders and governments in implementing these strategies. However, if the company fails to gain the support of these constintuencies, it has nothing left but to file for bankruptcy. We see this as the company’s last resort.
In 1847, one hundred and thirty-three years before the 1980 recession, Daniel Massey began building farm implements in his workshop in Newcastle, Ontario, Canada. That was the small beginning of what would become a huge, multinational company. In 1891, Massey merged his operations with another Canadian, Alanson Harris, who had been making and repairing farm machinery. In 1953, the Massey-Harris company joined forces with Harry Ferguson, an Irish engineer “who had revolutionized tractor design with his innovative three-point hitch.” The new company was named Massey-Harris-Ferguson Limited. Five years later the name of the company was shortened to Massey-Ferguson Limited. Today, in 1980, Massey-Ferguson Limited produces and sells farm machinery, industrial machinery, and diesel engines, all over the world. The three biggest players in the farm and industrial machinery industry are Deere & Company (Market share (’80): 49%), Massey-Ferguson (Market share (’80): 28%) and International Harvester (Market share (’80): 23%). In a nutshell, the industry of these companies thrives on people’s need for food. As the world’s human population grows, so does the demand for agriculture. Success in this industry is based on a company’s ability to provide bigger, better, and faster equipment so farmers can produce more product with less effort. Making the equipment easy to purchase is another key success factor, and the companies in this industry generally have, as part of their businesses, financing through wholly owned financing subsidiaries. Masseys Product Market Strategy...