19/09/2013 - 16:00

A tale of two dynasties

19/09/2013 - 16:00

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As Elders cuts staff and makes losses, you have to wonder what might have been.

A tale of two dynasties

As Elders cuts staff and makes losses, you have to wonder what might have been.

Elders might be a grand name in the rural sector but its corporate history is chequered.

I have long held an interest in the Adelaide-based business, particularly since the mid-1990s when it was taken over by Futuris Corporation, which was an aggressive investment group and a significant Perth company at the time.

In fact, I clearly recall the comparisons at the time with Wesfarmers, which had its own rural merchandise business that rivalled Elders. Back then, both companies were within cooee of each other in terms of market valuations.

I have mentioned this a few times in my columns but I could not help going back over old ground this week, after Elders announced more losses, asset sales and workforce cutbacks.

It would have been hard to imagine such a future in the mid-1990s. If anything, it was Wesfarmers that was seen to be the likely laggard when it came to reaping rewards for shareholders in the future.

Commentators at the time almost mockingly referred to Wesfarmers as something of a slow-witted beast compared to its slicker rival in Futuris.

Wesfarmers was a cautious investor, reflecting its roots as a rural cooperative. Futuris was a corporate raider seemingly more interested in participating in industry consolidation than the individual businesses it owned.

It was a local version of the story about the tortoise and the hare. In the end, we all know how that worked out.

Wesfarmers, still based in Perth, is now one of Australia’s biggest companies and the largest private employer in the nation.

Futuris eventually moved to Adelaide where Elders was based and changed its name to reflect its major business.

Both have made mistakes, in my view, but it is hard to imagine the comparison of nearly two decades ago occurring today. When I checked this week Wesfarmers had a market capitalisation of more than $42 billion, while Elders was worth a mere $47 million. That is a multiple of nearly 900 times.

Another measure as to how these two companies parted ways some time ago might be employee numbers. Elders claims to have fewer than 4,500 full-time equivalent employees (soon to be revised downward) while Wesfarmers has a workforce of more than 200,000.

Oddly, while it is easy to contrast Elders’ style as the aggressive corporate raider with Wesfarmers’ patient, steady-as-she-goes focus on shareholder value, it is possible that biggest difference was the different weight each placed on being a service provider to the farm sector. While Futuris bought in to business and expanded into related areas such as forestry, Wesfarmers ultimately exited the sector that had been its core.

Elders still struggles with the consequences of that.

Last week it revealed that it planned to cut its workforce by 10 per cent as part of more than $25 million in company-wide cuts.

Net losses for 2012-13 were expected to be between $32 million and $39 million.

Elders recently sold its Futuris Automotive business, a business unrelated to the rural sector but heavily reliant on the fast-declining Australian automobile manufacturing industry.

It is also winding down the vast majority of the forestry business.

Another contrast is where the businesses are based. Wesfarmers has resisted many ‘suggestions’ from east coast-centric investment community that it ought to move to Melbourne, where its key subsidiary enterprises Bunnings and Coles are located. Instead it remained at the heart of Western Australia, and seems to have grown at the same pace as the state.

South Australia, where Futuris chose to move, has had some wins from the resources boom but overall it has not really flourished like WA. The stalling of Olympic Dam, its one big resources project, difficulties in the wine sector and the troubles with car manufacturing have meant it has missed the growth seen on the west coast.


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