ruralco denies elders takeover plans

RISING farm services star Ruralco insists it is not making any plans to take over its big rival Elders, but it is clearly worried somebody else is - and they're probably from overseas.
In a pre-emptive strike Ruralco snapped up a 10.1pc stake in the iconic 173-year-old Elders in a surprise $12 million-plus share raid late last week.

Ruralco managing director John Maher said he had "no current intention" to make a takeover bid, but he did see his company's new portfolio of Elders shares as a "strategic stake" in the competition and future of the agribusiness sector.

The plucky Ruralco, largely owned by independent operators from within its network, has grown rapidly on the back of about 90 mergers and acquisitions in the past six years, with earnings up 40pc since 2005.

But it could find its market much tougher if a cashed up suitor was able to inject much-needed capital into the debt-heavy Elders network of 230 core rural branches (plus 225 real estate franchises and insurance offices) in Australia and New Zealand.

"Life's too short to get yourself stuck against two international big boys," said Ruralco managing director, John Maher.

"Elders has a national network and a strong brand with a large employee base - it would be no surprise if another corporation, including overseas interests wanted to make use of those assets.

"We have worked very hard in the past four or five years to build our position from number five in our market space to number two. We don't want that at risk."

Already the other big name in the Australian farm services sector, Landmark, has joined Canadian fertiliser and farm inputs giant Agrium after AWB sold it to commodity multinational Cargill in late 2010.

Since being offloaded to Agrium, Landmark's 440- branch network has started expanding, adding several new businesses and specialist staff to its ranks, including its wool trading and cotton service areas.

Ruralco, the parent company to the Combined Rural Traders (CRT) group and other agribusinesses with livestock, real estate, water trading and grain market services, recently made more acquisitions of its own, buying the FarmWorks retail group in Western Australia.

It also posted a half year after tax net profit $10 million last month.

Ruralco says it won't be seeking a seat at the Elders board table but Mr Maher said a 10pc stake was "one way we can preserve our position in the market and potentially ensure we have a say".

With medium and long term demand for Australian agricultural commodities looking robust and agribusinesses attracting increasing overseas investment and takeover interest, Ruralco wanted to be proactive.

"You can either sit back hoping for the best with your fingers crossed and hope they don't make a play into our market, or you can have a say at the table and maybe influence the outcome," Mr Maher said.

"We thought the timing was right to get a strategic stake.

"We're prepared to be a very patient stakeholder.

"Our focus remains clearly on the continued strong performance of our existing operations and it's business as usual for our people and customers."

Mr Maher said the Ruralco buying spree, which sent Elders shares from 18.5 cents to 22.5c by Friday afternoon, had full support from his company's biggest shareholder, investment and pharmaceutical company, Washington H. Soul Pattinson, which owns almost a quarter of the rural company.

The move came just a week after Elders posted its first profit in three years.

Despite weathering some slow sales conditions over summer, Elders reported a statutory half year profit of $40.5m to March 31, up from a statutory loss of $14.6m for its first half a year ago.

The profit was buoyed by one-off items totalling $34.4m after the company's recent successful challenge to a bill from the Australian Taxation Office.

Elders managing director Macolm Jackman said he recognised Ruralco's move was a "defensive position" but he also saw the buying interest as taking advantage of Elders' positive progress after years of costly debt and restructuring problems.

Elders has debts of about $370m with gearing of 53pc.

He said although livestock trading numbers were still sluggish optimistic weather patterns and the recent downward moves in the Australian dollar were "very welcome in the bush" and positive signs for the company.
http://theland.farmonline.com.au/news/nationalrural/agribusiness-and-general/finance/ruralco-denies-elders-takeover-plans/2582407.aspx?storypage=0


While there had been no formal notification that any significant party was looking at making a play for Elders, he said "there were always people supposedly checking out the options".

The bosses of both companies have talked briefly since the share buy up and are comfortable with Ruralco's long term position.

Mr Maher said there was no truth to suggestions that his company was already pedaling hard to find a bidder for the Elders automotive division, Futuris, as part of a strategy to move on the remaining rural business.

Elders shares were trading at 22c early this week.