Elders wins recruits as Ruralco-Landmark merger fallout begins

Elders tips growth from Ruralco-Landmark restructure washup

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Elders managing director, Mark Allison, believes "fallout" from the Landmark-Ruralco integration process will provide opportunities for his company's business and market growth.

Elders managing director, Mark Allison, believes "fallout" from the Landmark-Ruralco integration process will provide opportunities for his company's business and market growth.

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Agricultural services stalwart, Elders, may emerge a winner after rival Landmark's $460 million takeover of Ruralco.

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Elders could be an unexpected winner after Landmark's $460 million takeover of farm services sector rival, Ruralco, with the looming merger already convincing a trickle of defectors to jump ship.

Elders boss, Mark Allison, isn't taking anything for granted as tough seasonal conditions gnaw at farm sector earnings and Landmark prepares to claim almost half Australia's retail market for agricultural inputs.

However, the very week Ruralco welcomed Landmark's Canadian-backed takeover offer in late February several Ruralco livestock agents in Central Queensland walked to Elders.

The company has since receive "a bunch of approaches" from others wanting to flee.

Elders holds about 17 per cent of farm merchandise market share.. Independents have the remaining 35pc.

There are a lot of joint venture businesses in the Ruralco stable which may not feel so comfortable down the track - Mark Allison, Elders

A Landmark-Ruralco merger, still to be approved by shareholders and government regulatory authorities, would combine Australia's biggest and third biggest farm service and agency businesses.

Landmark, owned by North American fertiliser and farm chemical giant Nutrien, wants to achieve about $45m in operating synergies after absorbing its smaller rival.

Based on past integration experiences after acquisitions, Mr Allison believed it logical to expect staff and business rationalisation would steadily happen across Ruralco's portfolio, not just the closure of its Sydney head office.

"At the moment it looks like everybody's a happy camper, but Nutrien is paying a very full price of 12.7 times Ruralco's EBITDA," he said.

"There are a lot of joint venture businesses in the Ruralco stable which may not feel so comfortable down the track, especially if Landmark's local corporate branch starts taking priority for orders or business."

He said similar past agribusiness takeovers had generally resulted in significant business and staff attrition in following years.

AWB wrote off about $400m in Landmark goodwill within years of paying $718m for the company in 2003, while Landmark's share of the farm inputs market shrank from about 38pc to 25pc in the five or so years after the then Wesfarmers Dalgety brand absorbed the big IAMA rural supplies group in 2001.

Mr Allison said tight cash flow in drought-hit cropping belts and western pastoral regions may also influence stability and the mood at Landmark and Ruralco branches.

Moving camp

So far, Queensland, Tasmania and Western Australia had been notable for the levels of inquiry received by Elders from Ruralco circles.

"But, it's nothing new. We've had people moving to us for a while now and I think that theme will only continue," Mr Allison said.

Ironically, just six years ago when Elders was struggling to survive a $1.4 billion debt blowout, Ruralco launched a $250m takeover bid, following up its 2012 purchase of about 12pc of Elders shares.

The offer was rejected and Elders returned to profit in 2014, slowly rebuilding its agribusiness network to recruit new staff, including some who left in the dark times after the global financial crisis.

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Despite the likelihood of far more competition from beefed up Landmark in the year ahead, and forecasts of potentially challenging seasons continuing, the 180-year-old Elders is still optimistic about achieving its 5pc to 10pc business growth goal between 2017 and 2020.

It also expects a 20pc return on capital target next financial year.

Mr Allison tipped underlying earnings before interest and tax this trading year at a relatively steady $72m and $75m compared with $74.6 in 2017-18 when poor seasonal conditions were also prevalent, particularly in Queensland and northern NSW.

Underlying profit after tax was expected to be similar to last year's $63.7m - in the $61m to $64m range.

Tough start

However, after another tough summer of slow retail and wool earnings and investor unease about the drought and huge cattle losses to Queensland floods, Elders' share price has traded well down from its $8.87 peak last November to $5.67 early this week.

Mark Allison

Mark Allison

Mr Allison said conditions were in "pretty good shape" in Western Australia and much of the southern states, but the company could do nothing about poor weather conditions elsewhere, so it simply planned for a long game.

"Even an average season will be okay for us, this year," he said.

Good winter rainfall would be even better, triggering a big cropping effort to rebuild eastern Australian grain and fodder stocks.

He said a heightened responsibility was now vested in Elders and independent operators to service the local farm input marketplace with agronomic and livestock options well suited for local conditions.

"Landmark's strong North American product and agronomy influences might work well in soybean and corn fields, but a number of people say they don't necessarily suit broadacre Australia," he observed.

"We can't drop the ball.

"There are lots of opportunities to focus technology and product options on getting the best for our market."

Expansion agenda

Meanwhile, Elders was hunting for business expansion openings, ideally within Australia.

That domestic priority had not precluded management from considering New Zealand's big trans-Tasman PGG Wrightson agency and seed business late last year, but it retreated after Wrightson's seed division was carved off and sold to Danish seed giant, DLF, for $406m.

The appeal of geographic diversification and intellectual property gains had made the full Wrightson business "interesting", but not after it was broken up.

Successful acquisitions tend to be the good businesses you can pick up after the big, bright, shiny takeovers come back down to earth - Mark Allison

Mr Allison felt "fallout" from the Landmark-Ruralco integration process would provide opportunities for business and market growth, although Elders would not follow Landmark's big spending lead when making acquisitions.

It would also avoid buying businesses which could take a lot of restructuring effort and money to integrate into Elders' network.

"I'd consider Landmark and Ruralco coming together under one roof will prove to be a fairly high risk of integration," he said.

"Successful acquisitions tend to be the good businesses you can pick up after the big, bright, shiny takeovers come back down to earth."

Elders has also focusing on how best to buy locally within the farm supply chain to make use of about $800m in tax credits accumulated in the post GFC years when it posted heavy losses.

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