Shares in Australian agricultural business Elders hit a one-year
high after it confirmed an approach from rival RuralCo, its biggest shareholder, over
"a merger proposal".
Rumours of a potential tie-up between the two companies have
been circulating since RuralCo took a 10% holding in Elders four months ago,
a stake it has increased to 12%.
This speculation gained some foundation on Thursday when Elders
acknowledged that it had received an invitation from RuralCo managing director
John Maher for talks on "the potential for a transaction opportunity".
RuralCo said that the tie-up was based on deal which would
involve a cash call on shareholders, the merger of rural services businesses
and disposal of Elders' other interests.
'Consider its options'
But Elders chief executive Malcolm Jackman said that while
the group "would obviously consider and evaluate any sufficiently-detailed
proposal", the RuralCo proposal "was conceptual in nature and lacked sufficient
And RuralCo trimmed expectations among Elders investors of a
lucrative takeover pay-off by saying that it had suggested a deal "on a
nil-premium basis" – and based on share prices before speculation of an
acquisition took hold.
Nonetheless, Mr Maher added that RuralCo would "consider its
options over the coming weeks".
Shares in Adelaide-based Elders touched Aus$0.295 in Sydney,
their highest since October last year, before losing some ground to close at
The stock was standing at Aus$0.185, the lowest since at
least the 1980s, before RuralCo revealed its Elders holding.
'Capital position not sustainable'
Elders shares have been under steady pressure over the past
five years, during which the group has sold-off a series of assets, from
banking to woodland, in an attempt to shore up its finances and improve a
trading record marred by three successive annual losses.
In August, it revived plans to sell-off its car components business, and separately on Thursday revealed the Aus$3m sale of its 50% stake in the SmartFibre wood processing company.
RuralCo said that it believed that Elders "capital position
is not sustainable", and said that a tie-up represented the "best alternative
available" for the veteran feedlots-to-grain trading group to raise equity.
However, Mr Jackman said that RuralCo's interest "underscores
the progress that Elders is making in its strategy to become a pure-play rural
"Elders… believes that it has the capacity to create
significant value for shareholders over time."