Pacific Equity Partners among fresh eyes looking at Elders, page-2

Pacific Equity Partners among fresh eyes looking at Elders

PUBLISHED: 4 hours 44 MINUTES AGO | UPDATE: 0 hour 0 MINUTES AGO
Edited by Sarah Thompson, Anthony Macdonald and Gretchen Friemann

What are the well-heeled suited types at Pacific Equity
Partners doing sniffing around beleaguered rural services outfit Elders?
Talk remains rife in the bush about Elders’ stellar share price performance, with its shares up another 21 per cent in the 10 days since the Adelaide-based company told the market it had no idea why its shares were rocketing.
Other than Elders telling the market its second half is looking a little rosy, it’s none the wiser.
But word out in the paddocks of rural Australia is that a few fresh sets of eyes are running the ruler over the group. Private equity firm and public-to-private specialist Pacific Equity Partners is believed to be one of them.
It may not be a bad time to make a play given the group is showing the early signs of improving operational performance. Elders turned an underlying loss to a $6.7 million profit in the first half while its bank debt nearly halved to $118.3 million. Further asset sales mean it now owes the bank less than $100 million.
It’s believed PEP isn’t alone in considering a possible move. Street Talk reported last week that live exporter Wellard has shown some interest while Asian investors are also believed to be in the mix.
Of course PEP would face the same problem as any other Elders would-be suitors; finding a way to cut a deal with the hybrid holders, owed $145 million, while consuming the group, which has a market capitalisation back above $100 million.
The hybrids have made Elders all but takeover-proof in recent years, yet close watchers think PEP may be able to cut a deal where Elders’ rival – and largest shareholder – Ruralco couldn’t.
PEP has deeper pockets and since the proposed Elders/Ruralco deal fell over last year Elders has tidied up its books by selling assets and further reducing net debt to $236.6 million.
PEP will be aware that Elders is doing its best to turn around the business with a constrained balance sheet. Elders can’t pay hybrid holders distributions until it pays out its bank syndicate, which are owed about $120 million. And shareholders can’t get a dividend until the hybrid holders are paid. An equity raising, meanwhile, would be extremely difficult for Elders with institutional holders wary of the potential impact of hybrid holders.
Given its capital constraints, a deal seems inevitable at some point. It is just a matter of when, and at what price.
Whatever happens, those that bought stock in the past few weeks – the stock touched a low of 13.5¢ on June 17 – are currently sitting on a paper windfall of 66 per cent. It seems there may be some winners in the Elders saga, after all.