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M&A targets playing hard to get

Target companies in a current spate of merger and acquisition attempts are rightly playing hard to get.

Media speculation yesterday forced Ruralco Holdings Limited (ASX: RHL), the multifaceted agribusiness company, to reveal its failed attempt to woo fellow farming and agricultural supplier Elders Limited (ASX: ELD) into a merger last month. Ruralco is already the largest shareholders in Elders, having grown its share to over 12% this year, and believes that strong synergies exist between the two companies.

For its part, Elders — which has not paid a dividend since 2008 and is looking to dump its Futuris Auto business “sometime in the foreseeable future” according to ASX filings — noted its “strong preference” to defer detailed merger talks until its plan to become a purely rural services business has progressed further.

Investors in Elders have had a rough ride over the last couple of years as the cyclical agricultural industry and high debt levels have weighed the company down. However, chairman John Ballard expects a strong improvement in performance for the financial year ended September 2012, noting operating profit to before abnormal items and tax to be at least 15% higher than 2011.

Yesterday also, directors for listed household appliance manufacturer Fisher & Paykel Appliances Holdings Limited (ASX: FPA) urged investors to reject a NZD1.20 takeover offer from Chinese appliance giant Haier because an independent valuation of the company came in at between NZD1.28 and 1.57. Haier already owns 20% of FPA after bailing the company out in 2009 when demand for top-end appliances stalled.

The offer will feel like just-reward for patient investors who have stood by the company as the share price has languished at around NZD0.60 for the past two years.

Foolish takeaway

While it may appear unreasonable for poorly performing companies to so strongly resist the advances of their bigger and stronger suitors, directors of both Elders and FPA appear at least to be acting in the best interests of their shareholders, taking their time and forcing value to be recognised.

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Motley Fool writer Regan Pearson does not own shares in any of the companies mentioned in this article. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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