Elders out on top?

Press, 25 January 1988, Page 26

Elders out on top?

NZPA-AAP Sydney John Elliott’s Elders IXL has strengthened considerably its balance sheet through the Broken Hill Pty Co restructure and is now in a position to make a major acquisition in brewing, finance or agribusiness, according to broking analysts.

As the financial markets digested the multi-billion restructuring of BHP, Elders IXL appears to have come out the strongest. Its costly sAust2.l billion investment in BHP has been converted into a $575 million investment in a BHP joint venture company and $1.6 billion in cash, reducing its debt to equity ratio to historically low levels.

Analysts believe the company will move quickly to make a major purchase overseas, most likely involving its Courage Brewing operations in the United Kingdom or its recent agribusiness purchases in the United States.

As part of the $2.7 billion restructure Elders has sold its 18.9 per cent stake in BHP to a joint venture company controlled 50 per cent by BHP, releasing $1.6 billion

in cash and sustaining no loss on the book value of its investment.

“Their next step is to convert that cash into something else,” an analyst said. Elders’ investment in the joint venture company Beswick Pty will be $575 million — $75 million as ordinary capital and $5OO million in five-year 8 per cent redeemable preference capital. While Elders was previously able to equity account its investment in BHP, the cash from dividends was not achieving the required rate of return that Elders needed to service debt.

BHP will sell the 20 per cent of shares it owns in Elders to a company controlled by Mr Elliott and senior Elders directors, in a move that will ensure directors’ dedication to the future growth of the company. As a result of the BHP share sale Elders’ debt has been reduced to about 30 per cent of capital, a very conservative level considering the company usually like to operate on a ratio of one to one or 50 per cent. "There’s huge scope on theijr balance sheet for a

major acquisition,” a Melbourne analyst said. In brewing, analysts have tipped Heineken, San Miguel, Miller, An-heuser-Busch and Guinness Pic.

Despite the problems associated with the planned float of its Courage chain of pubs in the United Kingdom, Elders is likely to retain the group and use it as a major springboard into Europe. Elders acquired about $1 billion in agribusiness investments in the United States last year and might acquire or start up its own rural agency operation. While Elders has kept plans to float off its three major operations on the backburner it is unlikely to proceed until the sharemarket shows signs of new strength.

There has also been speculation that Elders might move to take over the merged Elders Resources/NZ Forest Products group or the merged North Broken Hill/Peko-Wallsend. Analysts said Elders would most likely remain a major investor in the new Elders Resources while still enjoying significant cash flows from the company. I