Daily ShareChat: Allied Farmers

Hanover Finance debenture, note and bond holders could potentially be better off if Allied Farmers' takeover offer succeeds while the position of United Finance debenture holders probably won't change, says McDouall Stuart.

Current Allied Farmers investors will see "a significant and much-needed capital injection into the company," although the transaction will make Allied Farmers a very different company with the finance operations dwarfing the rural services business.
Allied Farmers is proposing to buy the Hanover and United loan books and exchange the debentures, notes and bonds for Allied Farmers shares in a $400 million deal.

"While the mechanics of the deal are complex, the concept of a debt for equity sway is relatively simple," the broker says. "The proposal appears to offer genuine and substantial advantages to both sides."

It is likely the new Allied Farmers would be sufficiently large to make the Top 50 Index, lifting its appeal to new investors, McDouall Stuart says.

For many Hanover and United investors it could be the first time they have owned shares, which brings added risks as well as rewards.

"Nevertheless, the advantages of exchanging an illiquid investment that cannot be accessed for potentially many years (if at all) for a tradable share that can be converted into cash immediately should hold appeal for investors."

Disclaimer: McDouall Stuart principal Andrew McDouall has been a director of Allied Farmers since 1999 and the firm was lead manager and underwriter of the company's May rights issue.

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