Elders, one of Australia's oldest agricultural brands, has put its core rural services division up for sale in the latest stage of a shake-up following a takeover approach from its biggest shareholder, RuralCo.

The group, which in August revealed plans to sell its Futuris car parts business, said that, "as part of an accelerated strategy to return value to stakeholders" it had put its iconic agricultural business, selling agrichemicals, farm supplies, livestock and wool, up for sale too.

The move follows confirmation earlier this month that RuralCo had made an approach on a tie-up aimed at exploiting the potential for merging the group's rival operations.

Elders at the time said that it was "fully committed" to being an agriculture-based business, and said RuralCo's interest highlighted "the progress that Elders is making in its strategy to become a pure-play rural services business".

However, Monday's move could open the asset to a range of bidders, including foreign groups such as Agrium, which bought AWB's Landmark farm retail chain last year, with Japan's Marubeni seen as another potential suitor.

Many Australian agribusiness groups have already fallen to foreign takeovers, with GrainCorp, Australia's last listed grain handler, currently the subject of overtures from US-based Archer Daniels Midland.

Market reaction

Nonetheless, Elders' announcement received a tepid reaction from investors, who sent its shares down 3.9% to Aus$0.245 in Sydney, amid concerns over the likelihood of the auction unlocking more value than a sale of the group itself.

At RBS Morgans, analyst Belinda Moore, valuing the rural services division at $246.5m-328.7m, said that "the Elders board is clearly taking a view that the sum of the parts is worth more than the whole.

While "this may be the case", it depends on whether holders of hybrid shares accepting a discount to face value of their paper, without which, for ordinary shares, "we struggle to get a valuation much above the current price", she said.

Octa Phillip valued the rural services business at Aus$375m.

RuralCo reaction

RuralCo itself said that Elders auction of rural services, and indeed of the car parts business, was "unlikely to create any shareholder value", adding that it was "disappointed" by Monday's announcement.

However, the sale of rural services "creates opportunities for RuralCo" in being able to benefit from synergies of crunching the operations with its own if it wins the auction, and being able to exploit the Australia flag if it is outbid by a foreign suitor.

For the Elders business to become foreign owned  would leave Ruralco "well placed for ongoing market share growth as the only remaining large Australian-owned rural services business with a proven business model attractive to key personnel".

'Appropriate refinancing'

RuralCo also further pressed home concerns over the balance sheet at Elders, which acknowledged that it was "in discussions with its banking syndicate about an appropriate refinancing".

Elders, which nearly collapsed in 2008, has been the subject of market speculation that lenders are losing patience, with a series of loans due to mature in December.

Elders' chief executive, Malcolm Jackman, said on Monday that the group had the "full support" of its banks for its sales process.