Futuris steps up

There is nothing particularly complicated about Malcolm Jackman's strategy for restructuring Futuris Corp. That's a welcome change from a company that has rarely done anything that was simple or transparent.

Futuris' roots were as an entrepreneurial, opportunistic, 1980s-style investment conglomerate, which is not that surprising given that it was controlled for a long time by former Robert Holmes a Court lieutenant, Alan Newman. Newman merged Futuris with Elders in 1996 after Elders was weakened by its acquisition of Australian Agricultural Company (AACo) a year earlier.

His successor, Les Wozniczka, was a former senior investment banker. While he was somewhat more operationally focused, he found it difficult to resist doing deals and pursuing complex and secretive strategies. Hence the string of Futuris investments and operations unrelated to the core rural services business that are about to be re-named "Elders Ltd."

Jackman, the former chief executive of Coates Hire, is a rather more forthright and straightforward character.

He has adopted the gameplan outlined by his board before his appointment to shrink the group's portfolio to the core of its rural services, financial services and forestry operations, shedding most of the rest to raise about $305 million of cash but in the process incurring $204 million of write-down's on assets sold and a further $138 million of impairment charges on assets retained.

Jackman will also continue to restructure the group's management and reporting lines to reflect the shift in the Futuris model from a holding company with a diverse portfolio of interests and operations to a more focused group with a coherent strategy.

Given the external environment – and agribusinesses are being impacted by both the drought and the financial crisis – the challenge for Jackman isn't in articulating the vision for the "new" Elders, but in its execution.

Critical to his plan to sell assets and reduce debt and create some capacity to build on its core operations will be the sale of the group's 43 per cent stake in AACo. Jackman thinks Futuris can get at least $260 million for AACo, or $135 million more than book value.

While that's based on a market price almost $1 a share above AACo's current trading levels, sales of pastoral properties in northern Australia have been occurring at reasonably strong valuations and AACo has a uniquely attractive portfolio. Futuris' failure to sell its stake in the past was largely due to the politics of its relationship with AACo and AACo's own ambition to be independent.

AACo represents at least 75 per cent of the cash Jackman hopes to raise, with the rest provided by a disparate array of investments that fall outside the new definition of what's core – and some that would have fallen outside any definition of core.

If execution risk is a challenge for Jackman, the vulnerability of Futuris/Elders as it makes its transition to a more focused future is another. Elders has, of course, one of only two rural distribution platforms in the country (the other is AWB's Landmark, which incorporates the other great pastoral house, Dalgety).

There is enormous consolidation occurring within the agribusiness sector globally and the global financial crisis can only accelerate and exacerbate that – AWB is already talking to ABB about a merger. The big international groups are on the prowl and a Futuris in transition would be an interesting target.

Jackman was chosen by the Futuris board despite his lack of an agribusiness because he has a track record as a very good manager and, equally as important, is highly-regarded by the market for his openness as well as his performance.

As Futuris moves from the shadows into the sunlight, Jackman's ability to convince the market of the underlying value and prospects of the new Elders could be as important to the group's ability to survive as an independent entity as his management skills.