Mounties to the rescue? Elders a good marriage prospect IAN VERRENDER September 8, 2009
As Malcolm Jackman's valiant battle to rescue the rural services group Elders from oblivion finally starts to bear fruit, his efforts won't have gone unnoticed in boardrooms stretching from North America to the Middle East.
While resources have grabbed the headlines in recent years, Australia maintains its place as one of the world's great rural exporters and has become an attractive target for multinational agribusiness corporations.
Witness the takeover attempt of ABB Grain - the old Australian Barley Board - by the Canadian group Viterra which will be decided by a shareholder vote in Adelaide tomorrow under a scheme of arrangement.
Elders, coincidentally also based in Adelaide, would make an ideal fit for Viterra and its new Australian operation, particularly since Jackman has largely cleaned up the debt-laden mess left by his predecessor, a crisis brought sharply into focus by the meltdown in credit markets.
Yesterday Elders shares slumped 37 per cent to 24.5c - they fell as low as 21c - as they laboured under the weight of Friday's mammoth and deeply discounted $550 million capital raising and the subsequent huge increase in the number of shares on issue.
Given the new shares have been issued at 15c, yesterday's market reaction clearly heralded the raising as a resounding success. With its flurry of divestments in recent months, Elders has become better known for what it no longer owns. It has sold its timber business to Gunns, its stake in Australian Agricultural Co, its rural bank , the insurance business and various other bits and pieces for $650 million, with several more operations still on the block.
But at the heart of its operations is a rural services business that has stood it in good stead for 170 years, surviving even the tumultuous 1980s when it found itself the flagship for the corporate buccaneer John Elliott.
Once the asset sales are completed, Elders will resemble the stock and station agency it once was decades ago, providing the rural sector with everything from inputs to marketing services to real estate.
Valued at a touch above $300 million last week, the company will be left with minimal debt - about $200 million - if the capital raising pulls in the entire $550 million, which now appears to be assured.
At the weekend, Jackman described the protracted negotiations over the equity raising as akin to ''a near death experience''.
He wasn't kidding.
Negotiations waxed and waned with all parties playing chicken, refusing to budge first. The bankers wouldn't play ball until the equity was in place and the institutions wouldn't stump up the cash until the banks
were on side.
Rural production in Australia is still largely is dominated by family operated businesses and, until the great wave of privatisation in the 1990s, by co-operatives and government controlled marketing boards.
With the rapid development of Asian economies and Australia's position in the region, geographically and from an export perspective, there has been a marked increase in foreign interest in the sector.
One of Elders' divestments - its large stake in pastoral group Australian Agricultural Company - was snapped up by the Dubai-based IFFCO, which quickly was followed by Viterra's interest
in ABB.
The fertiliser group Ridley also has been on the radar in recent times, having fended off a bid by Graincorp only to find itself the target of renewed interest by
Sir Ron Brierley's Guinness
Peat Group.
There is no doubt Viterra would find an operation like Elders attractive and, given its recent travails, the time would be ideal for a move on the group.
First, however, it would need to get its bid for ABB across the line.
This week's meeting - a takeover by a scheme of arrangement - has been branded fair and reasonable and involves either a share swap or a full cash offer.
But farmers, many of whom inherited their shares when the group was corporatised and then floated, are a notoriously conservative bunch, and the bid's success is anything but assured.
There have been rumblings of discontent from growers about the idea of a foreign takeover and the merged group's planned dividend policy - which is no dividend at all.
Source: The Sydney Morning Herald
ELD Price at posting:
$2.45 Sentiment: None Disclosure: Held
(20min delay)