The rural services company is a remnant of its younger self and is pitching around amid the undertow of a debt greater than its worth.

Illustration: Michael Mucci.

ELDERS Ltd is a bit like the bloke drowning in the surf. He’s waving his arms about yelling, ”Don’t rescue me! Don’t rescue me!”

Another six-footer breaks on his head. He goes under. He bobs up spewing water and gasping for breath. Gesticulating at the lifesavers who’ve paddled out to save him he splutters, ”I’m all right, I’m all right!”

The lifesavers are worried though. They think this bloke is definitely drowning. But the bloke, choking on seawater and clearly foundering, lashes out.

”If you come near me again with this rescue proposal, I’ll sue. I’m fine. How dare you assault me with this unsolicited rescue approach! I’m going to the pre-e-e-e-ss.”

Just five years ago, Elders had a market value of $2 billion. Back in the day, in the heady 1980s, it even bid for BHP itself.

Things have changed. The corporate raiders have gone, as have the marquee assets such as Carlton & United Breweries. And now Elders is wallowing under a debt load of $420 million while its market cap stands at a mere $123 million.

As Elders’ fortunes have ebbed, and its earnings for that matter, a nippy little parvenu from Hobart, with its earnings on the rise, has bounced onto the scene and lobbed a takeover proposal.

Rather than engaging with Ruralco and its confidential proposal, though, Elders opted to kick up a stink in the press. According to Elders, the letter it received from Ruralco a month ago was ”short”, ”conceptual in nature” and ”lacked sufficient detail”.

At the risk of labouring the point, this was akin to the drowning man telling the lifesavers that their proposal to rescue his life was ”conceptual” and ”lacking in detail”. Having recorded bottom-line losses in the past three years of $466 million, $218 million and $395 million, having failed to sell its auto parts business as promised, and wrestling now with precipitous leverage of 6.4 times forecast earnings before interest, tax, depreciation and amortisation (EBITDA), Elders is being a tad choosy.

Ruralco, moreover, has lately become its largest shareholder, with a stake of 12 per cent, and combining itself with Elders (No.3 and No.2 in the rural services market respectively) sounds like a sensible idea.

While spurning Ruralco’s affections, Elders boss Malcolm Jackman had the cheek to tell the ASX that its suitor’s proposal – this is the confidential letter that was leaked to the press and helped bolster Elders’ stock price despite it being apparently too short to be taken seriously – ”underscores the progress that Elders was making in its strategy to become a ‘pure-play’ rural services business”.

By raising a huge $500 million in equity when he took over, and by shedding some forestry assets and the likes, Jackman can claim to have kept Elders alive. But it is hardly out of the woods yet.

On July 31, Elders announced it was culling jobs at head office to cut costs. Two directors, Ray Grigg and Anna Buduls, were to depart.

About two weeks later on August 15, the head of the audit committee, Rob Wylie – incidentally of Centro board fame alongside Buduls – was also to leave. It was a bit sudden, without much explanation and not coupled with the news of the volunteer departures. As Elders’ September 30 balance date was looming, this was no time for the head of audit committee to saunter away.

If the debate this week has swung on whether the Ruralco letter to Elders had been too short, not long enough or too darn conceptual, it will soon move to the subject of survival again.

In the wake of the financial crisis, Elders, like many other companies with high gearing, had disclosed the maturities on its borrowings. Having refinanced, however, it has not delivered much public detail since.

This deal has to be friendly, and it would entail the blessing of the competition regulator since the upshot of a merger would be the coming together of the third and second players in the rural services market.

The industry structure is redolent of the supermarkets, with Ruralco being Metcash to Elders and Landmark (owned by Canadian group Agrium) as Coles and Woolies.

There is a far greater presence of independent players in rural services though, which makes a tie-up of Ruralco and Elders plausible on competition grounds – certainly more realistic than a marriage of Elders and Landmark (an outcome mooted by Elders’ campaign managers).

Besides the Australian Competition and Consumer Commission and the Elders board, Ruralco also needs to get Elders’ hybrid noteholders onside. The notes have been trading at less than half their $100 face value, just shy of $45 recently. They rallied $5 on news of the Ruralco approach.

The noteholders will have to weigh up Elders’ prospects of survival with what they think they can squeeze out of the Tasmanian suitor.

Rural services is a scale game. Elders is struggling to service its rural network and its only defence to the Ruralco offer to recapitalise is to sell the auto-parts operation quick-smart. But Jackman has been trying to do that for three years.

Ruralco won’t have to ”do a TPG” – which put out a rumour it was walking away from its Billabong bid and put a 20 per cent dent in Billabong’s stock price in the process – to get Elders to the table. It should happen soon enough.