Case Notes/Answers
Massey Ferguson Ltd 1980, By Carliss Baldwin, Scott
Mason, Jennifer Hughes
Discussion Questions:
1. To explore the concept of optimal debt ratio based upon basic business risk and competitive
risk.
2. To illustrate the implications of an aggressive debt ratio policy that is inconsistent with an
aggressive corporate strategy.
3. To assess the cost of too much debt as the loss of competitive position resulting from financial
distress.
4. To examine the interaction of competitive strategy and financial policy and the use of finance
as a competitive weapon.
5. To gain insight into financial distress and the available remedies, including restructuring
operations and financial claims and the role of interested parties (e.g., governments) in
providing funding and guarantees.
, TEACHING NOTE
Massey-Ferguson Ltd. (1980)
Substantive Issues
The Massey-Ferguson case provides an excellent vehicle for discussing the determination of a
target debt policy consistent with business risk and competitive risk. The case explores the
difficulties encountered by a firm with too much debt for the risk level of its business. The costs of
excessive leverage are clearly evident in the loss of competitive position accompanying financial
distress. The case is rich in competitive dynamics and the interaction of financial and competitive
concerns. The case illustrates the use of finance as a competitive weapon. Finally, the Massey case
addresses the concept of financial restructuring—the refinancing of companies in financial distress.
Pedagogical Objectives
1. To explore the concept of optimal debt ratio based upon basic business risk and competitive
risk.
2. To illustrate the implications of an aggressive debt ratio policy that is inconsistent with an
aggressive corporate strategy.
3. To assess the cost of too much debt as the loss of competitive position resulting from financial
distress.
4. To examine the interaction of competitive strategy and financial policy and the use of finance
as a competitive weapon.
5. To gain insight into financial distress and the available remedies, including restructuring
operations and financial claims and the role of interested parties (e.g., governments) in
providing funding and guarantees.
Massey Ferguson Ltd 1980, By Carliss Baldwin, Scott
Mason, Jennifer Hughes
Discussion Questions:
1. To explore the concept of optimal debt ratio based upon basic business risk and competitive
risk.
2. To illustrate the implications of an aggressive debt ratio policy that is inconsistent with an
aggressive corporate strategy.
3. To assess the cost of too much debt as the loss of competitive position resulting from financial
distress.
4. To examine the interaction of competitive strategy and financial policy and the use of finance
as a competitive weapon.
5. To gain insight into financial distress and the available remedies, including restructuring
operations and financial claims and the role of interested parties (e.g., governments) in
providing funding and guarantees.
, TEACHING NOTE
Massey-Ferguson Ltd. (1980)
Substantive Issues
The Massey-Ferguson case provides an excellent vehicle for discussing the determination of a
target debt policy consistent with business risk and competitive risk. The case explores the
difficulties encountered by a firm with too much debt for the risk level of its business. The costs of
excessive leverage are clearly evident in the loss of competitive position accompanying financial
distress. The case is rich in competitive dynamics and the interaction of financial and competitive
concerns. The case illustrates the use of finance as a competitive weapon. Finally, the Massey case
addresses the concept of financial restructuring—the refinancing of companies in financial distress.
Pedagogical Objectives
1. To explore the concept of optimal debt ratio based upon basic business risk and competitive
risk.
2. To illustrate the implications of an aggressive debt ratio policy that is inconsistent with an
aggressive corporate strategy.
3. To assess the cost of too much debt as the loss of competitive position resulting from financial
distress.
4. To examine the interaction of competitive strategy and financial policy and the use of finance
as a competitive weapon.
5. To gain insight into financial distress and the available remedies, including restructuring
operations and financial claims and the role of interested parties (e.g., governments) in
providing funding and guarantees.
