REV. JUNE 15, 1990
Massey-Ferguson Limited, a multinational producer of farm machinery, industrial machinery, and diesel engines, was founded in 1847 and by 1980 had manufacturing and assembly operations in 31 countries throughout the world. Massey-Ferguson was the West’s largest producer of farm tractors and the world’s largest supplier of diesel engines to original equipment manufacturers. In 1978 however, Massey reported an unprecedented year-end loss of U.S.$262.2 million. The new president, Victor A. Rice, pledged to restore Massey to profitability by the end of its 1979 fiscal year. Massey did show a profit of U.S.$37.0 million in 1979, but reported a loss on continuing operations of U.S.$35.4 million (see Exhibit 2). Sales in the first half of fiscal 1980 were up, but earnings remained severely depressed. (Historical financial data are provided in Exhibits 1–4.) In April of 1980 a preferred share issue of Can.$300 million to $500 million1 was postponed indefinitely. The postponement was attributed to Massey’s operating problems and to the fact that Argus Corporation, Massey’s largest shareholder, refused to take a block of the preferreds as a vote of confidence in Massey. As 1980 progressed, it became apparent that without an equity infusion, Massey would be in default of several loan covenants before the end of the fiscal year (October 31, 1980). Cross-default provisions made substantially all long- and short-term debts callable if any single default occurred. If Massey’s lenders then cut off credit and moved to secure their loans, company operations would quickly come to a halt. Plant shutdowns, further worker layoffs, and a liquidation of corporate assets would follow. Creditors and customers around the world wondered if Massey would make it through the looming financial crisis.
Massey-Ferguson had been called “the one true multinational.” Its products—farm equipment, industrial machinery, and diesel engines—were sold throughout the world by dealers, distributors, and company retail outlets. (Exhibit 5 shows a breakdown of 1980 sales by national markets. Table A summarizes Massey-Ferguson’s sales by product line and geographical area.)
1 In 1980, the Canadian dollar was trading in the range of U.S.$.80–.85.
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Breakdown of Massey-Ferguson’s 1980 Sales (in U.S. $ millions) Farm and Industrial Equipment Percentage of Sales Geographically
Diesel Engines $599
Sales North America (U.S., Canada, Mexico) Western Europe Rest of world
33.2% 35.6 31.2%
Massey-Ferguson annual report
Massey’s production facilities were also dispersed around the world. (Exhibit 5 shows the distribution of MF capacity by country.) Massey’s largest facilities were located in Canada (Brantford and Toronto), France (Marquette), England (Coventry), and Australia (Melbourne). Diesel engine production was concentrated in England (Peterborough). In certain markets, primarily North America, Massey financed retail sales of farm and industrial machinery through wholly owned finance subsidiaries. In Europe and...