Business

Tue May 06 22:39:21 PDT 2008

By Michael Byrnes

SYDNEY, May 7 (Reuters) – Shares in Australia’s AACo <AAC.AX>, the world’s biggest cattle firm, dropped as much as 14 percent on Wednesday after Futuris Corp Ltd <FCL.AX> said it had ditched plans to sell its 43 percent stake in AACo.

Analysts said the shares of both companies were hit because the decision took AACo out of play as a possible takeover target, while Futuris had failed to deliver on a promised sale which would have been used to pay down debt.

Rural conglomerate Futuris, which also said after Tuesday’s close that its earnings in fiscal 2008 would be at the top end of market forecasts, saw its shares fall over 10 percent.

Futuris had been holding out for a big price for its stake in AACo, which it had been unable to obtain despite strong inherent value in the cattle company, analysts said.

None of the proposals received for AACo had certainty of execution or timing, Futuris said in a statement, adding that market recognition of the value of food production had increased significantly since the sale was mooted.

AACo was not immediately available for comment, but analysts said its vast landholdings and a positive outlook for cattle prices meant it was still in a strong position.

"There’s a lot of inherent value in AACo," analyst Belinda Moore of ABN AMRO Morgans said.

The company’s properties could increase in value, while cattle prices, which have remained flat while other commodity food prices have soared, were expected to rise, she said.

"Cattle prices will move eventually. We’re in a world that’s demanding higher protein diets. Chinese have gone from eating one to three meals of beef," she said.

World prices of food commodities, especially grains, have soared since last year as markets focus on rising demand for protein in emerging Asian giants China and India.

AACo said on Wednesday that the quality of its northern landholdings had drawn a high level of market interest.

AACo has a landholding of 8 million hectares, or 1.2 percent of the entire land area of Australia, as big as Ireland and 12 percent the size of Texas.

The company runs a herd of over 500,000 cattle on more than 20 properties across Queensland state and in the remote Northern Territory.

AACo, which has been operating since 1824 and is one of Australia’s oldest firms, plans to double its herd size by 2015.

The company has been hit in recent years by Australia’s worst drought in 100 years. The drought has begun to ease, although more rain is needed to bring an end to dry conditions, the Australian weather bureau has said.

Late last year Futuris announced an intention to sell its state in AACo, throwing the cattle company into play as a possible takeover target.

At 0248 GMT, AACo shares were down by 9.9 percent to $2.82, off an earlier low of A$2.70 and valuing the company at around A$724 million. Futuris shares were down 9.95 percent to A$1.90.

(Reporting by Michael Byrnes; Editing by James Thornhill and Lincoln Feast)

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