THE DISTILLERY: Mourning Elders

Instead of merging with Ruralco, Australia's iconic rural services company Elders has chosen to basically sell the lot, settle its debts and turn over the remaining scraps to shareholders. After 173 years, Elders has succumbed to a series of pressures.

This morning Australia's business commentators search for an explanation of why it's come to this. However, while looking, none of them had the presence of mind (or lack of self-respect) to make a pun about the passing of adored Elders.

Fairfax's Elizabeth Knight explains that it's been said that lenders to Elders had encouraged the company to pursue a merger deal with Ruralco, but that the company instead opted for what is in effect a self-liquidation.

"The Ruralco proposal would have allowed the existing Elders shareholders some exposure to the upside if the merged group could have boosted profits. But under the terms of that deal the hybrid securities would not have been paid out at the full 100 cents in the dollar, but at an amount that reflected the current trading price. The banks would have been on a more secure footing and shareholders would have retained some skin in the game – but what this is worth is not exactly clear. Under the plan announced by Elders yesterday, the banks should also be fully paid out and potentially the hybrid security owners will also receive more. How much will be left for shareholders is guess work. But this is not something the banks have to concern themselves with.”

The Australian's John Durie also attempts to offer some context to explain why the company chose this option as opposed to a Ruralco merger.

"Chief executive Malcolm Jackman rejects the mere notion that the banks have taken control of the process, but Sunday's board meeting seems to have flowed from talks with the lead bankers late last week. Last month the folk at Ruralco proposed a nil-premium merger plus a capital raising for the rural services division. This would have put money into shareholder hands, but equity holders rank third in the food chain under Jackman's proposals behind the banks and then the hybrid holders. The hybrids are now worth about $145 million and are exercisable at the company's call. They are an old-fashioned poison pill installed by Wozniczka before the keys were handed to Jackman.”

The Australian Financial Review's Chanticleer columnist Tony Boyd explains that precious little will be left over for shareholders after the companies more senior liabilities have been met. After sorting that, Boyd launches into a detailed history of the company's time at the centre of John Elliott's push into beer, pubs, resources and agriculture under the banner name Elders IXL.

"Elliott used the Henry Jones IXL jam maker as his vehicle for a reverse takeover of Elder Smith Goldsbrough Mort, which in turn was used as the vehicle to take over Carlton and United Breweries in 1982. Chanticleer was fortunate enough to be on the Melbourne Stock Exchange floor when Elliott orchestrated the raid on CUB. At its peak in the late 1980s, Elders IXL was the largest Australian company measured by revenue, but all that fell in a heap when the stock­market crash hit in 1987. The peak of Elders' power in business was in 1986 when the blueblood establishment called on Elliott to play the role of white knight and rescue BHP from the clutches of Perth-based entrepreneur Robert Holmes a Court. Chanticleer is indebted to fellow Financial Review columnist Pierpont for details of how Elders IXL extracted a high price from BHP for rescuing the company.”

Meanwhile, Fairfax's Michael Pascoe argues that the white paper on Australia in the Asian Century was a dumbed down document that obscured an important complex message of opportunity for this country.

In company news, Fairfax's Adele Ferguson explains how ASX chief executive Elmer Funke Kupper won't be looking forward to a report coming from the Council of Financial Regulators in a couple of months; because it's expected to recommend the market operator's clearing monopoly to be scrapped.

And finally, The Australian Financial Review's Matthew Stevens says the Asian Century has come in quite a hurry for Bowen Basin junior Endocoal, which is recommending a $71 million takeover offer led by China's Yima Coal Group.