Massey Ferguson

1. The expense of cost of goods sold, translated at average exchange rates for the year on the income statement was the most responsible for this drop in income. Comparing with 1979, this expense increased by US $186.7 million in 1980 and this was the main reason why the loss from continuing operations increased from US $35.4 in 1979 to US $199.7 million in 1980. We can see that the high interest rate and inflation increased the cost of production to a very high level so that a huge loss has been made. 2. It was because of the problem of unemployment. The Canada Imperial Bank of Commerce was Massey’s largest lender among lenders in Canada, Great Britain, West Germany, France, Italy, and the United States. Most of the borrowing was unsecured. Also, Massey’s largest shareholder, Argus Corporation, was a Canadian holding company. If Massey went into bankruptcy, the Canadian government was anxious to avoid a loss of jobs of 6700 people in Ontario. Also, the finance of Argus and CIBC would be affected too. Then, the problem of unemployment in Canada would worsen. Therefore, the Canadian governments agreed to provide financial assistance for Massey. 3. There were two main reasons. First, Massey had a high debt-to-equity ratio and those debts had some restrictions. The numerous covenants related to these loans hampered Massey’s free access to the capital markets. It was required to pay accumulated preferred dividends before Massey could issue new preferred shares.
Second, Massey’s largest shareholder, Argus Corporation, was reluctant to take a block of shares. Argus was considered by the financial community to be a potential source of equity capital for Massey, but they showed no interest in putting up a lot of money and holding 16% of the outstanding shares. Therefore, the preferred stock issue was