Ann: Trading Halt , page-85

Elders pulls off $315m deal
Danny John
August 1, 2009

ELDERS has cleared the way for a desperately needed capital raising to ease its debt woes after global insurer QBE yesterday threw the rural services group a $315 million lifeline.

Preparations are now under way for an entitlement offer to be put to the company’s shareholders.

The deal will see QBE buy Elders’ insurance businesses and become its new cornerstone investor, with a 12.5 per cent stake. Analysts forecast the capital raising could bring in as much as $250 million on a 1-for-1 basis.

QBE is to acquire 112 million shares at 40¢ each, costing a total of $45 million. That is a 44 per cent premium on the 27.5¢ share price when Elders was placed in a trading halt on Thursday as signs of a deal began to emerge.

QBE is also taking full ownership of Elders’ insurance underwriting business and 75 per cent of its insurance distribution agency, with its 400-strong sales team and 136 representative offices across rural Australia. Elders will retain a 25 per cent shareholding and has the right to move to a 50:50 joint venture by December 2012 on the same terms QBE is paying.

These two transactions will cost the insurance group run by Frank O’Halloran $270 million.

The deal is a significant coup for Elders chief executive Malcolm Jackman, who was brought in last year to save the rural company from collapsing under the weight of $800 million of debt.

The proceeds will add to the recent sale of 10 per cent of the group’s now minority shareholding in Elders Rural Bank, and its stake in the Australian Agricultural Company.

But Elders still needs to get its debt below $500 million to secure its future.

The company has been affected by reduced demand, falling prices, the rural recession and a disparate group of businesses that soaked up too much capital.

The next hurdle for Mr Jackman is to secure a longer-term refinancing arrangement with Elders’ banking syndicate, which recently gave the group a short-term extension to repay its debts by September 30. Its lenders are believed to have warmly welcomed yesterday’s deal.

Mr Jackman is also heading to the US to negotiate with Elders’ American noteholders, who are owed about $150 million that has to be repaid in three different tranches in coming years.

He told BusinessDay yesterday that the deal with QBE was ‘‘not the answer to all of our issues, but it is a significant step forward in the restructuring of the company’’.

Every stage of a three-step plan was aimed at cutting the group’s heavy borrowings, he said. ‘‘We still need to halve our current debt levels.’’

This will include an equity raising from existing shareholders. Elders stock jumped by nearly 40 per cent to close at 38¢ yesterday, after coming out of its trading halt.

QBE’s shares slipped 27¢ to $19.50 on what the market considered were generous terms paid for the Elders’ businesses and its shareholding.