On the surface Elders and Ruralco should merge and take on the giant Calgary based Agrium Group, which owns the number one pastoral house in Australia, Landmark.
But below the surface Elders and Ruralco have very different cultures and chief executives. Should a merged Elders-Ruralco company be based in Hobart and run by John Maher or be based in Adelaide and run by Malcolm Jackman?
There is no doubt Maher wants the job. He joined Ruralco in 2006 to take charge of the merger with Tasmanian pastoral house Roberts. Previously, Maher was with AWB which then owned Landmark.
Maher has expanded Ruralco by establishing a network of independent businesses that operate as Ruralco branches. Ruralco’s agricultural business is half the size of Elders' but on each dollar of turnover Ruralco is twice as profitable as Elders. Ruralco shareholders have done very well under Maher.
But Malcolm Jackman and Elders clearly do not see going down the Ruralco merger path as their best option or they would have explored merger discussions with Maher after Ruralco bought 12 per cent of Elders.
Instead it was Ruralco that wrote to Elders (Ruralco pitches Elders on merger proposal, October 4).
When Jackman came to Elders in 2008 from the Coates Hire group he took on one of the toughest management tasks in the country because Elders – which was once the dominant Australian pastoral house – was close to collapse. He has a deep-seated passion to not allow the 173-year-old Elders operation to fall into receivership.
Jackman held Elders group together and is now selling the automotive parts operation and running down forestry to become a pure rural play. He will then get the chance to lift profitability. The Elders balance sheet still needs a lot of work to lower borrowings. Shareholders funds are dwarfed by the $145 million in hybrid securities.
Jackman likes to express his mind in public. Maher is rarely seen but clearly believes he can gain Ruralco profit margins from Elders turnover.
Back in 2006 it was Washington H Soul Pattinson who engineered the Roberts/Ruralco merger.
There is no doubt that on the surface there would be substantial cost reductions as one branch would be required in smaller rural cities where there are now two.
But that does not always work. We are seeing in the banking business Westpac believes that it makes sense to have two brands – St George in NSW and Queensland and Bank of Melbourne in Victoria. Bendigo bought the Cyprus bank and will continue to run it under the Cyprus name to keep the customers.
A lot of people in country towns may lose their jobs after a Elders/Ruralco merger and a branch rationalisation operation. Some disgruntled people may join the Canadian Landmark operation and take the customers with them.
Ruralco’s letter to Elders indicating it would like to discuss a merger starts the game, but when very different cultures and chief executives are involved merger games are never easy.