Elders Secures $195.8M Sale of Killara Feedlot at 4x Book Value Premium

Elders secures $195.8 million sale of Killara Feedlot

Elders Limited (ASX: ELD) has announced the Elders Killara Feedlot divestment to Australian Meat Group Pty Ltd (AMG) for total consideration of approximately $195.8 million. The transaction represents a strategic exit from an integrated beef production facility at a substantial premium to book value.

Killara operates as an integrated grain-fed and grass-fed beef production facility in the Liverpool Plains region of New South Wales. The operation processes approximately 62,000 head of cattle annually and sits on 1,402 hectares of freehold land. The sale is subject to approval from both the Foreign Investment Review Board (FIRB) and Australian Competition and Consumer Commission (ACCC), with completion expected prior to 30 June 2026.

The transaction represents a disciplined capital allocation decision, allowing Elders to crystallise value from a non-core asset and redeploy proceeds toward debt reduction and future strategic flexibility.

Breaking down the transaction economics

The $195.8 million consideration comprises two components: $122.0 million in cash and approximately $73.8 million in normalised working capital, which predominantly includes cattle inventory. This structure reflects the capital-intensive nature of feedlot operations, where livestock inventory represents a substantial proportion of asset value.

The sale delivers a significant premium to book value. Killara’s non-working capital assets totalled $45.5 million at 30 September 2025, meaning the transaction values the business at more than four times its non-working capital book value. This premium underscores the strategic value AMG places on acquiring an integrated beef production facility with established infrastructure and operational capacity.

From a tax perspective, the transaction is highly efficient. Elders has carried forward capital tax losses of $107.4 million, sufficient to fully offset the capital gain arising from the sale. This means the company will realise the full economic benefit of the transaction without incurring capital gains tax liability.

The premium to book value, combined with the tax-efficient structure, maximises shareholder value from the exit whilst positioning Elders to strengthen its balance sheet materially.

What is a feedlot divestment and why do companies pursue them?

Feedlots are capital-intensive agricultural operations that fatten cattle for processing. They require significant working capital to maintain livestock inventory, as demonstrated by Killara’s $73.8 million working capital position, alongside substantial land holdings and infrastructure investment. For diversified agricultural companies like Elders, feedlot operations can tie up capital that might generate higher returns elsewhere in the business.

Agricultural conglomerates periodically divest mature or non-core assets to specialist operators better positioned to extract value through focused management and vertical integration. In Elders’ case, management has characterised Killara as a successful operation but one better suited to a “more natural owner” for continued growth. This concept of a “natural owner” reflects the reality that specialist beef producers may achieve greater operational synergies and strategic value from feedlot assets through vertical integration with processing and distribution operations.

The divestment allows Elders to redeploy capital toward higher-growth opportunities or core activities within its broader agricultural services and products portfolio. For investors, understanding these feedlot economics helps assess whether the $195.8 million valuation represents attractive pricing and sound strategic logic. The substantial premium to book value suggests Elders has successfully crystallised value from an asset that may have offered limited growth potential within its existing business structure.

Balance sheet transformation and leverage reduction

The sale proceeds will be applied directly to net debt reduction post-completion, delivering significant balance sheet benefits:

1. Immediate debt reduction: The $122.0 million cash component plus working capital proceeds will reduce net debt, improving financial flexibility.

2. Leverage target achieved: Management is targeting a return to below 2.0 times accounting leverage, providing a more conservative capital structure.

3. Enhanced strategic optionality: A strengthened balance sheet creates capacity for future capital deployment toward growth investments or potential shareholder returns.

This deleveraging strategy addresses investor concerns about balance sheet capacity whilst preserving operational earnings power. The transaction demonstrates management’s willingness to prioritise financial resilience over maintaining non-core assets, particularly when premium valuations can be achieved.

Minimal earnings impact

The earnings dilution from the Killara divestment is forecast at less than 1 per cent reduction on an annualised basis. Whilst Killara contributed $12.1 million in underlying EBIT during FY25, the minimal EPS impact reflects the offsetting benefits of interest savings from debt reduction and the removal of working capital requirements.

This represents an attractive trade-off for shareholders. The company crystallises a substantial premium to book value, eliminates capital gains tax through existing losses, and materially strengthens the balance sheet whilst absorbing minimal earnings dilution. The transaction economics suggest Elders is optimising for balance sheet efficiency rather than maximising short-term reported earnings.

Regulatory pathway and timeline

The transaction requires two regulatory approvals before completion:

• FIRB approval: Foreign Investment Review Board clearance required due to AMG’s ownership structure
• ACCC approval: Australian Competition and Consumer Commission assessment of competitive impacts in beef production markets
• Target completion: Prior to 30 June 2026, subject to regulatory approvals

The regulatory pathway represents standard process for transactions involving foreign acquirers and material agricultural assets. Management’s confidence in achieving completion before 30 June 2026 suggests no anticipated obstacles in the approval process. Killara will be recorded as an asset held for sale and discontinued operation in Elders’ HY26 financial statements, removing its results from continuing operations reporting.

Management perspective on strategic rationale

Managing Director and CEO Mark Allison framed the divestment as supporting Elders’ value creation strategy whilst acknowledging Killara’s contribution to the business.

Mark Allison, Managing Director and Chief Executive Officer

“Killara has long been a successful and valuable part of Elders’ Products and Services Portfolio. We feel for Killara to continue to grow and develop as a blue chip operation, it is appropriate for it to move to a more natural owner, and we have found this in AMG. The sale at this time supports our value creation strategy for Elders’ shareholders. We thank Killara management and its employees for their contribution to Elders.”

The language used by management suggests a disciplined portfolio management decision rather than a distressed sale. The emphasis on a “natural owner” and “blue chip operation” positions the transaction as opportunistic value crystallisation at an attractive multiple, rather than an exit driven by operational challenges or financial necessity.

What this means for Elders shareholders

The Elders Killara Feedlot divestment represents a textbook example of disciplined capital allocation, delivering multiple benefits whilst minimising operational disruption:

• Premium valuation realised: Sale at more than four times non-working capital book value
• Tax-efficient structure: $107.4 million in capital tax losses fully offset capital gains liability
• Balance sheet strengthening: Proceeds applied to debt reduction, targeting below 2.0 times accounting leverage
• Minimal earnings dilution: Less than 1 per cent annualised EPS impact
• Near-term completion: Expected finalisation prior to 30 June 2026

The transaction demonstrates Elders’ willingness to exit assets when premium valuations can be achieved and capital can be redeployed more effectively. The balance sheet flexibility created by debt reduction positions the company for future strategic opportunities, whether through organic growth investment, acquisitions in core segments, or potential capital returns to shareholders. For investors, the transaction signals a management team focused on maximising shareholder value through active portfolio management rather than simply maintaining existing business lines.

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