14/08/2007 - 22:00

Keeping an eye on Futuris

14/08/2007 - 22:00

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While technically a South Australian company ever since taking the national rural giant Elders, Adelaide-based Futuris Corporation Ltd is a company I’ve always watched – albeit at a distance lately.

So I was prompted into a trip down memory lane when I noted a Fututis subsidiary had emerged with a big stake in the producer of Harvey Beef last week.

Futuris, many will recall, has strong ties with Western Australia where it commenced business and was quite a high flyer under the guidance of Alan Newman, who had the tactically aggressive flair of the late Robert Holmes a Court.

At first glance, Futuris employed that same wisdom as Wesfamers Ltd, a conglomerate of disparate businesses held together by a disciplined head office.

At some stage in the mid-to-late 1990s, those two companies were compared in the same breath, due partly to the nature of their structure and, when Futuris took over Elders, the dominant sector they both strode in.

They were also much closer in market capitalisation than they are now.

Elders versus Wesfarmers was a short-lived match-up, with the two companies dominating the rural services business across the nation and being two of the biggest corporate players in Perth.

At one stage, the pair fought in the courts as they slugged it out over the ownership of the third biggest player in the sector, IAMA Ltd.

But really, they were only similar on the outside.

Internally, the two companies were very different. Wesfarmers was conservative while Futuris was something of a maverick.

They have since diverged significantly in terms of scale. Since the end of calendar 1996, Wesfarmers has grown its market capitalisation from $1.99 billion, Australia’s 39th biggest listed company, to $15.66 billion this week, making it 21st in the ASX 100.

In that same period, Futuris’ market capitalisation has climbed from $723 million, the 94th biggest listed company in the nation, to $1.75 billion, the 97th.

In the financial year ending June 30 2006, Futuris produced a total shareholder return of more than 20 per cent.

Over five years, though, the positions were reversed, with Wesfarmers averaging almost 13 per cent, against basically nothing for Futuris.

When I asked a senior Wesfarmers executive about the Futuris strategy, the view was that the Adelaide firm had returned good shareholder value over the year.

Perhaps that’s just generosity on behalf of a former cross-town rival.

One thing I always noticed about Futuris and its offshoots was its propensity to take a stake at or around 20 per cent in a company that interested them.

Perhaps limited by takeovers rules in many cases, it was a formula I have seen applied time and time again – sometimes as a strategic stake in a potential target, other times as a strategic stake in an industry.

Those commenting on behalf of Futuris would often say they were simply seeking a seat at the table – be it the future of the company concerned, or the consolidation of an entire industry.

Having Futuris on the register was not always to a company’s liking. Whether it got a board seat or not, it made sure its rights as a minority stakeholder were looked after and demanded information, via litigation if needed. Information was the key, it appeared.

They often ended up with 100 per cent of the target sometime later.

Probably the most notable of these moves was its 1993 acquisition of a 15 per cent stake in Elders Australia Ltd. By 1996, Futuris had taken a controlling interest in its target.

The starting stake is a familiar tale after that, though the outcomes vary.

For instance, it built a 19.7 per cent stake in IAMA which it ultimately sold to Wesfarmers, which wanted to merge it with its Wesfarmers-Dalgety rural services division, since rebadged as Landmark and sold to AWB Ltd.

Over the years it has a 21 per cent stake in fertiliser company Incitec Ltd; there was a 16 per cent stake in Queensland’s Primac Ltd in 1996; in 1997 it started buying up Perth housing inputs supplier Bristile Ltd, a former subsidiary which it had floated, emerging with 19.75 per cent by July 1998; and there was a 33 per cent stake which Elders acquired in HiFert in 2004.

Now, of course, there is Harvey Industries Group Pty Ltd, the owner of Harvey Beef, where Elders has emerged with a stake of around 20 per cent, two years after the original owner failed.

Even its investments appear to have similar strategies.

In 1998, Bristile bought 19.9 per cent of another Perth building products group, Wesfi Ltd.

In 2005, Futuris had built a 50 per cent stake in MIS player ITC Ltd. ITC took a 19.9 per cent interest in rival Forest Enterprises Australia Ltd, which was based in Tasmania.

Lately it has been Perth-based Amcom Ltd, a telco it took a 22 per cent stake in 2004. Last year, Amcom grabbed a 19.9 per cent shareholding in East Perth ISP iiNet Ltd.

It’s a colourful history.

While the success stories are fairly obvious, it’s very difficult to judge any move a failure because, with Futuris, observers could never be too sure what the ultimate plan was when it turned up on a company register.

Even under Mr Newman’s successor Les Wozniczka, Futuris still keeps the market guessing. And that keeps the company interesting to me.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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