Elders’ shares continue to move down after the Rural Bank acquired Elders’ 95 financial services staff under the new nine-year distribution agreement.
On Wednesday, agribusiness company Elders Limited (ASX: ELD) announced that the company will enter into a new nine-year exclusive distribution arrangement with Rural Bank from 4 March 2019.
Rural Bank was a 50-50 joint venture between Elders and Bendigo Bank when it got authorized to function as banking organization in the year 2000. But later in 2008, Elders sold its ownership in Rural Bank to Bendigo Bank and entered into a distribution partnership under which Elders had the right to distribute deposit and loan products to rural and regional customers on behalf of Rural Bank.
So far, this distribution agreement has been on track but now it is reported to be replaced by the introduction of new arrangement. Rural Bank will be acquiring, as per the new agreement, approximately 95 Agri-finance relationship managers as well as support staff of Elders. Under this arrangement, these employees will manage deposits and provide transactional services to the customers of Rural Bank but will continue to operate from Elder’s branch. The arrangement translates that Elders’ 95 employees will no longer be employed by Elders and will come into a direct employment of Rural Bank with effect from 4 March 2019.
In return Rural Bank will pay certain fees to Elders Bank at the time of termination or expiry of the contract. Elders told that both the parties have termination for convenience rights that may be exercised at the end of 3rd and 6th year of the term.
Ahead of establishing new partnership with Rural Bank, Elders expects that its annualised earnings before interest and tax driven by this relationship will be within the range of 5% and 10%, higher than earnings from its relationship with Rural Bank in Fiscal 2018.
On customers front, there would be almost no change in the picture. That means if the transitions go smooth, the customers will be served by the similar locally based, Agri specialist relationship managers as before the change in relations.
Elders CEO and Managing Director Mark Allison ensured that this new arrangement between Rural Bank and Elders is in the best interest of employees, customers and other stakeholders.
Mr. Allison further added that with this new arrangement Elders can more focus on its specialist financial services under its Eight Point Plan meanwhile, providing a secured revenue stream to its shareholders.
In today’s trading session, Elders’ shares plunged by 1.065% or $0.075 to last trade at $6.965 as on 29 November 2018. Moreover, the stock last traded at a price to earnings ratio of 11.350 x with market capitalization of $821.4 million. Over the past one year, Elders’ share price has gone up by 6.51% but in the last 5-day trade it has dipped by 3.16%.
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