The above photo from Reservoir Dogs was taken from the Elders Ltd (ELD) v Elders Hybrids (ELDPA) post, written back in 2013. I was intrigued by the stand-off between ELD and ELDPA holders and why the ELDPA share price was being discounted so aggressively ($15 at the time of writing) while the ELD share price itself was performing 'okay' (around 8c or 80c following the 1-for-10 consolidation in 2014).
Since then, life has actually worked out well for both ELD and ELDPA. Really well. Thanks to a major improvement in the fundamentals of the business, ELD has marched up to $3.76; an Internal Rate of Return (IRR) of 70% p.a. Even more impressive is the performance of ELDPA. The company has recently offered to redeem ELDPA for $95 equating to an IRR of 88% p.a - truly outstanding.
The initial logic of preferring ELDPA was correct. But far more importantly, it was the actual business performing well that has saved the day - NOT any decision between ELD and ELDPA -both ELD and ELDPA has been massive performers. A very similar stand-off has been in play for years now at Paperlinx/Spicers. The big difference is the Spicers business is still struggling and both SRS and PXUPA flounder. You would be technically correct in thinking PXUPA sit higher up in the capital structure, but if the business never recovers then it doesn't matter.
Kristian
Disclosure: no position in the above names, except a nominal holding in SRS to gain attendance to the AGM.
