The 11-year saga of Elders’ expensive hybrid shares is rolling to a close as stock market trading in the one-time gilt edged securities halts today.
The revived farm services business is acquiring the last 419,600 special preference shares, or convertible notes, not already sold back to the company in the past 18 months.
Elders will effectively compulsorily “realise” the securities for $108.48 each on March 30.
The $45.5m buyback will enable the agribusiness to afford to pay its ordinary shareholders by December – their first dividends in nine and a half years.
Originally known as Futuris Corporation hybrids, about 1.5 million were issued in February 2006 by Elders’ fast expanding parent company which needed to lure fresh investor capital to the conglomerate’s expanding and debt-heavy balance sheet.
Although they promised to be a premium investment, within three years the $100 hybids proved to be pretty much a dud for the original security holders.
During their lifetime they have only paid a total $19.13 each in distributions (dividends) because by 2009 Futuris was struggling to survive the global financial crisis (GFC) and its $1 billion-plus debt load.
No dividends have been paid on any Elders shares since September 2008.
By mid 2013 the hybrids had plunged in value to just $8 each on the Australian Securities Exchange.
Almost all current hybrid holders on Elders’ books bought in at significant discounts to the original price as early investors bailed out, worried Elders was about to collapse.
However, Elders Management Services will now redeem the last 28 per cent of the special stock for their original $100 price tag, plus distributions generated this year, worth $8.48 each.
Last year it paid $95 each to try to clear the decks, but despite accumulating about 1.08m shares, more than a quarter of its hybrid holders have held out for a better deal, possibly anticipating the latest dividend offer and a better buy-back price.
Elders’ directors had to do something to wrap up their uncomfortable preferential share experience, having already committed to paying long-suffering ordinary shareholders during 2017.
Legally the company cannot pay ordinary dividends before making a year’s distributions to hybrid holders.
Having twice before offered to buy up the hybrids, Elders last month allocated funds for latest purchases, drawing on reserves remaining after a capital raising last year and free cash flow from this year’s trading revenue.
“Removal of the hybrids is a step of fundamental importance to Elders and its shareholders,” said managing director, Mark Allison.
The process would simplify the company’s capital structure into a one class of ordinary shares and he assured ordinary shareholders it would not adversely impact on their shareholdings.
One of the options Elders had when deciding the future of its hybrid was to convert them to ordinary shares which could have diluted the value of the current register by more than 10pc.
Chairman, Hutch Ranck, has thanked ordinary shareholders for their patience during Elders’ long period of balance sheet repair.
He said the company appreciated the hybrids had been an “impediment to the attractiveness of Elders as an investment” and their removal was a significant milestone, positioning the company to capitalise on opportunities which would benefit all shareholders.