The Elders Ltd (ASX: ELD) share price won't be going anywhere today after the agribusiness company requested a trading halt this morning.
Why are Elders' shares in a trading halt?
This morning Elders requested a trading halt whilst it undertakes an equity raising to fund the acquisition of Australian Independent Rural Retailers (AIRR).
AIRR is a member based buying and marketing company for independent rural merchandise and pet and produce stores. The business is a national wholesale platform supported by a network of eight warehouses servicing more than 1,500 customers.
It has approximately 240 independent member stores and an additional 100 Tuckers Pet & Produce stores located across Australia. The company also owns and operates 5 retail locations in Victoria.
According to the release, Elders has entered into a scheme implementation deed with AIRR to acquire 100% of its issued shares by way of a scheme of arrangement for $10.851 per share.
This consideration comprises 50% cash and 50% Elders scrip with a mix and match facility provided to AIRR shareholders. It values AIRR at $157 million on an equity value basis and $187 million on an enterprise value basis.
AIRR's board of directors has unanimously recommended the scheme, in the absence of a superior proposal and subject to the independent expert's report.
Why is Elders acquiring AIRR?
Management advised that the acquisition will provide the company with an entry into the wholesale rural services market, which enables a new growth channel and is consistent with its Corporate Acquisition Principles.
In addition to this, management estimates that it has the potential to deliver net synergies of $6.6 million to $9.33 million per annum, which will be gradually realised over the next two years.
It is also expected to deliver low single digit EPS accretion on an FY 2019 pro forma basis before synergies and low double digit EPS accretion post synergies.
AIRR is expected to generate EBITDA of $21.9 million for the twelve months to September 2019.
Equity raising.
Elders is funding the acquisition through a $137 million equity raising and issue of $79 million of new Elders shares to AIRR shareholders as scrip consideration.
The equity raising will comprise a fully underwritten 1 for 6.7 pro-rata accelerated non-renounceable entitlement offer to raise approximately $97 million and a fully underwritten institutional placement to raise approximately $40 million, both at $5.55 per share. This represents a 9.5% discount to the last close price.
Guidance reaffirmed.
Finally, Elders took this opportunity to reaffirm its guidance for the full year. The company continues to expect FY 2019 underlying EBIT in the range of $72 million to $75 million and underlying NPAT in the range of $61 million to $64 million.
Elders isn't the only company tapping the market for funds today. Both Telix Pharmaceuticals Ltd (ASX: TLX) and 4DS Memory Ltd (ASX: 4DS) are in a trading halt as they each undertake a capital raising of their own.
