Elders Ltd (ASX: ELD) shares have gone into a trading halt after announcing an acquisition.
Elders is an agriculture business which can trace its history back to 1839 to help the farming industry. Elders creates specialised products and services, tailor-made to meet the needs of its various clients. It offers rural services, financial planning, real estate, insurance and home loans.
Elders Acquisition
Elders shares have gone into a trading halt for a capital raising to acquire ‘Australian Independent Rural Retailers’ (AIRR).
The half cash, half Elders shares offer is at $10.85 per AIRR share, which is a 27% premium to the average price of the last 60 days of $8.51.
The acquisition will be funded by a $137 million capital raising and also issuing $79 million of new Elders shares to AIRR shareholders as part of the deal.
Elders said that the deal has the potential to deliver net synergies of $6.6 million to $9.3 million per year, which will be gradually realised over the next two years.
But, it also makes sense by providing entry for Elders into the wholesale rural services market which enables a new growth channel for the company. AIRR is a member based buying and market group for independent rural merchandise and pet & produce stores. It has eight warehouses servicing over 1,500 customers.
AIRR is expected to generate EBITDA of $21.9 million (click here to learn what EBITDA means) for the 12 months to September 2019, with an EBITDA compound annual growth rate of 18% between FY13 to FY19.
Elders Capital Raising
New shares will be offered at $5.55 per share, which is a 9.5% discount to the closing share price of Elders on 12 July 2019. Between regular retail investors and institutions, Elders hopes to raise $137 million.
Elders Trading Update
The agribusiness re-iterated its FY19 guidance of underlying EBIT in the range of $72 million to $75 million and underlying net profit of $61 million to $64 million. Generally, the company is seeing improved results compared to last year in the third quarter.
Is Elders A Buy?
It’s really hard to say when is a good time to buy Elders shares, it’s not the type of business I would normally buy. It seems to be a cyclical business, so I’d only want to consider buying at the bottom of the cycle.
Due to the fact it’s so hard to judge, I’d much rather buy shares of the reliable and proven ASX shares in the free report below instead.
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