Lecture11 - stakeholder theory massy ferg analysis

Sukandfranceand

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Unformatted text preview: to restore profitability in 1979 – Profit of USD 37.0 million; loss on continuing operations – Sales in first half of 1980 are up, but earnings remain depressed April 1980: a preferred share issue of CAD 300 million to 500 million is postponed indefinitely. Reason: Argus Corp, Massey’s largest shareholder, refused to take a block of the preferred shares as a vote of confidence (debt overhang?) 22 The Situation in 1980 (exhibits 1-4) End of 1980 shows a looming financial crisis Without an equity infusion, Massey would default on several loan covenants before the end of the fiscal year Cross­default provisions implied that if a single default occurred, then virtually all short and long­term debt would be called by lenders Lenders would cut off credit and secure their loans Company operations would quickly come to a stop, leading to: – Plant shutdowns – Further worker layoffs – Liquidation of corporate assets 23 MF’s Corporate Strategy During 1971-76 Massey’s goal was growth and world market share. Focus on building sales in less developed countries The two main competitors John Deere and International Harvester focus on North America and Western Europe Massey’s overall sales are about evenly split among LDCs, North America, and Western Europe (exhibit 5) But Massey’s production facilities were more concentrated in developed countries: Canada, U.S., UK and France. And it sells the output to the Third World (exhibit 5) – Labor costs are higher than in LDCs – But scale economies – Need for skilled workers – Minimize political risk of expropriation 24 MF’s Corporate Strategy During 1971-76 Note that the farm equipment industry is an oligopoly While Deere and Harvester focused on developing new models of large tractors for developed countries, Massey took its traditional product, small tractors, and pioneered new markets for it. Massey’s small tractors were appropriate for LDCs and did well, but at the cost of lagging in the development of the large tractors increasingly demanded by North American farmers. 25 Was This Corporate Strategy Reasonable? With the shrinkage of the developed countries’ farm economies, 20 years ahead Massey’s markets in LDCs are expected to dominate world agricultural production Competition was weak and non­existent in LDCs – Massey pioneered these markets, which is tough – But not more than attacking entrenched competitors such as Deere and Harvester in developed countries Massey’s diversification across so many developed and less­developed countries throughout the...
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