Gee, who would have thought it!
“If the share issue does not happen, Elders will hit the wall on September 30, its debt renegotiation deadline. Receivership will be difficult to avoid”.Clock running down for Elders.
To avoid receivership (in an attempt to renegotiate its debt), apparently Elders is having to savagely slash the value at which it’s offering its shares to large investors. To this extent it has so far pitched shares at, “…61 per cent below market (39c before shares were halted days ago), and a sobering 95 per cent below Elders’ peak price of $2.83 in July 2007, just before the global debt crisis erupted.” (‘The Age’, Malcolm Maiden)
The worrying aspect of this issue would seem to be that as Maiden says, “The institutions believed that Elders’ debt reconstruction deal was priced as if Elders would still be in a fight for its survival after the debt reconstruction and the share issue had put that issue beyond doubt.“
Then if Elders can/does survive to fight another day, can a business like this that depends upon 5.5%(?!) sales commissions and merchandise sales expect to survive in 2009/10+ (especially if it sells down its HiFert shares)?
Additionally, can much value really be added by a centralised administration (ASX listed) group to a large agency network that survives on the personal relationships of its staff/operatives? And if it’s the relationships that count, why aren’t these operatives out working as independents without being tied-down by Head Office? (Perhaps this is cause for wonder about the ability of a lot of Elders employees who think they need a red shirt to get their work).
Makes you consider whether some red shirts might be looking to change to a more positive color in the near future.
What do you think?
Please leave your comments below.
ruralaustralia said
While it’s still to be ratified by shareholders, it seems Elders is nearly out of the woods….for now.
Bear the following points in mind as relayed by Bryan firth in ‘The Australian’.
“Shareholder approval is required because the institutional placement involves 3.25 times the number of shares on issue. …..Elders …will issue 2.667 billion new shares under the institutional placement and between 500 million one billion new shares under the “SPP”. (WOW!!)(Ed)
…the huge increase in the equity base means that Elders will have to run hard to generate an acceptable return.
The company reported a statutory loss of $415m for 2009 and an underlying loss of $5m to $15m….and a payout is not expected before March 2012.
A dividend of only 1c a share on the increased equity would require between $40m and $45m (net profit). A 5c a share dividend would require $200m to $225m.
It could be some time before the company returns to a meaningful payout.
Ed: Given agencies reflect the fortunes of their clients, does this mean farmers can expect a turnaround of similar proportions? I doubt it! So, how realistic is the Elders projection?!
ASX Watcher said
Elders is currently $0.18 – Seems the market doesn’t think that big asset sell-off and massive issue of new shares (diluting existing share-holders) can’t overcome the large debt still on hand and can the traditional agency model based on ever increasing %commissions survive this brave new World?