AFR article 1:
Edited by Sarah Thompson and Anthony Macdonald
Elders has long been the company with too big a stench for potential suitors to overlook. But Street Talk can reveal that there is a party interested in cutting a deal with the struggling rural services group, although it is not known whether it is interested in Elders as a whole or just parts of it.
The would-be buyer is understood to be working with the corporate finance team from Octa Phillip – the rebadged Austock – and while a transaction is far from being consummated, sources close to the situation say talks are ongoing.
There have been many passing glances at Elders over the years but a cash-hungry forestry arm and an automotive parts business are just some big reasons large agricultural players have overlooked buying the rural merchandise group.
Yet there appears to be a breakthrough with the biggest stumbling block of all – Elders hybrids.
Any potential suitor needs to pay holders 100¢ in the dollar, which equates to an extra $150 million on top of any transaction price. Hybrid holders are also entitled to a part of any takeover premium.
Let’s remember, Elders’ market capitalisation of $90 million is much less than its outstanding hybrids.
A number of hybrid holders representing a large chunk of the equity, however, have instantly made Elders seem far more appealing to would-be suitors. Sources say some hybrid holders have talked up the fact that they would consider taking a haircut on their investment in order to cut and run.
A would-be suitor could look at paying holders as little as $75 million to $120 million to do a deal.
Certainly the appetite for hybrid holders to cut a deal is likely to subside if Elders starts boosting its bottom line and its ability to restart distributions improves.
Although, even as it projects a profit this fiscal year, it’s worth noting that concerns over its significant debt burden remain – even if it can lift earnings.
Elders gearing sits at an uncomfortable 58 per cent. Net debt grew to $373.4 million in the first half.
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