QBE comes to Elders' rescue with $315m
Sydney Morning Herald
Saturday August 1, 2009
ELDERS has cleared the way for a desperately needed capital-raising to ease its debt woes after the global insurer QBE yesterday threw the rural services group a $315 million lifeline.Preparations are now under way for an entitlement offer to be put to the company's shareholders following the deal, which will see QBE buy Elders' insurance businesses and become its new cornerstone investor, with a 12.5 per cent stake. Analysts forecast the capital-raising could bring in as much as $250 million on a one-for-one basis.QBE is to acquire 112 million shares at 40c each, costing a total of $45 million. That is a 44 per cent premium to the 27.5c price at which Elders stock was placed in a trading halt on Thursday as signs of a deal began to emerge.At the same time, QBE is taking 100 per cent ownership of Elders's insurance underwriting business and 75 per cent of its insurance distribution agency, with its dedicated 400-strong sales team and 136 offices across rural Australia.Elders will retain the other 25 per cent and have the right to move back to a 50-50 joint venture by December 2012 on the same terms that QBE is paying.These two transactions will cost the insurance group, run by Frank O'Halloran, $270 million.The deal is a significant coup for Elders's chief executive, Malcolm Jackman, who was brought in last year to save the iconic rural company from collapsing under the weight of $800 million of net debt.The planned proceeds will add to the recent sale of 10 per cent of the group's now minority shareholding in Elders Rural Bank to co-owner Bendigo and Adelaide Bank, and its remaining stake in the Australian Agricultural Company.But Elders still needs to get its debt levels to below $500 million in order to secure its future.The company has been brought low by the combination of reduced demand, falling prices, the rural recession and a disparate group of businesses.The next hurdle for Mr Jackman is to secure a longer-term refinancing arrangement with Elders's banking syndicate, which recently gave the group a short-term extension to repay its debts by September 30.Mr Jackman said yesterday that the deal with QBE was €śnot the answer to all of our issues but it is a significant step forward in the restructuring of the company€ť.Elders stock rose by more than a third to close at 37c yesterday after coming out of its trading halt as investors piled in on the expectation that the entitlement offer would be struck at a decent discount to the current price.QBE's shares slipped 24c to $19.53 on what the market considered were generous terms paid for the Elders's businesses and its shareholding.
© 2009 Sydney Morning Herald
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