Elders has sold for Aus$165m its minority stake in Rural Bank, as the troubled Australian agribusiness icon prepares for a potentially enhanced battle in its core farm services sector.

Shares in Elders rose 4.5% after it revealed the disposal to of its 40% share in the bank to joint venture partner Bendigo, which will now have complete ownership.

The sale is the latest in Elders' long history of corporate change, which saw the company, founded in 1839 to tap into Australia's nascent farming industry, expand into jams and brewing in the 1980s, and even bid for mining company BHP, only to fall foul of the downturn late in that decade.

It also comes as Elders - which in June stunned investors by warning it was on course for a full-year loss of up to Aus$14m, compared with previous guidance of a Aus$56m profit – prepares for a potentially tougher competition in the rural services market, after rival AWB was taken over by Canada's Agrium.

'Ticks all the boxes'

Michael Jackman, the Elders managing director, said that sale of the stake in Rural Bank - originally named Elders Rural Bank - was a "positive step" which would free up the group's capital "to concentrate its resources on what it does best, rural distribution".

He added: "Debt levels will be reduced substantially and the release of capital, improved cash flow and distribution focus ticks all the boxes for our mission of becoming an asset-light, cash-focussed, high performance, sales organisation."

The deal is expected to be earnings neutral for Elders, with profits from Rural Bank made up by the interest payments saved from cutting debts.

Besides the sale proceeds, Elders will also receive Aus$10m in a final dividend payment, and benefit in cash flow terms from no longer having to tie up assets to support Rural Bank's capital base.

Shares revive

The sale price was equivalent to 1.2 times the bank's book value, lower than most other recent deals in Australian banking, with most grouped around 1.7 times book, although these higher prices also included a bigger element of control premium.

Elders shares closed up 4.5% at Aus$0.695 in Sydney, more than twice levels touched in June after the profits warning.

The stock has also been boosted by hopes that Elders would follow AWB in receiving a takeover proposal, although such speculation has been viewed by analysts at Austock Securities as set to "remain just talk until there is a firmer capital base and sustainable [rural services] culture and cost base".