Duxton Farms Unveils $298M Merger and $4M Placement to Boost Scale and Diversification
Duxton Farms announces a transformative merger with four private agricultural companies, alongside a $4 million fully underwritten placement and a special dividend, aiming to significantly expand its asset base and diversify its portfolio.
- Proposed merger to acquire four private agricultural companies across dried fruits, orchards, apiary, and walnuts
- Merger to create a $298 million gross asset agricultural entity with 180,000 hectares and 32,000 ML water entitlements
- Fully underwritten $4 million institutional placement at $1.25 per share with major shareholders committed
- 85% franked special dividend of $0.24 per share announced following recent asset divestment
- Proposed variation to investment management agreement increasing management fee and removing performance fee
A Strategic Leap for Duxton Farms
Duxton Farms Ltd, the only ASX-listed mixed farming enterprise, has announced a significant strategic move to expand and diversify its agricultural portfolio. The company proposes to merge with four private Australian companies specializing in dried fruits, orchards (apples), apiary, and walnuts. This merger is set to create a larger agricultural player with approximately $298 million in gross assets, spanning 180,000 hectares of land and supported by 32,000 megalitres of water entitlements.
The merger is designed to broaden Duxton Farms’ exposure across new geographies, commodities, and production systems, combining mature operating businesses with early-stage greenfield opportunities. This diversification aims to enhance earnings potential and create more predictable cash flows over time, positioning the company as a scalable investment platform on the ASX.
Capital Raising and Shareholder Returns
In conjunction with the merger, Duxton Farms plans a fully underwritten institutional placement to raise approximately $4 million at $1.25 per share, representing a discount of around 7.4% to the last traded price. The placement proceeds will fund the cash component of the merger, existing development projects, including expansion of pistachio orchards and agricultural precincts, and the acquisition of additional water entitlements.
Following the recent sale of its Kentucky property for $38 million, Duxton Farms has declared an 85% franked special dividend of $0.24 per share, totaling about $10 million. Eligible shareholders may participate in a dividend reinvestment plan (DRP), with the company’s two largest shareholders committed to reinvesting their full dividend entitlements, representing over half of the total dividend.
Operational and Governance Enhancements
As part of the merger, Duxton Farms proposes to vary its investment management agreement with Duxton Capital. The revised agreement would increase the management fee from 0.85% to 1.25% of net asset value and eliminate the performance fee, aligning with market practices. Additionally, Duxton Farms plans to internalize certain corporate functions currently provided by Duxton Capital, such as legal, governance, human resources, and finance, aiming to streamline operations and reduce related party engagements.
The merger will also lead to significant share issuance, with approximately 55.5 million new shares expected to be issued to Merger Company shareholders, representing about 53.4% of the post-merger share capital. Escrow arrangements will restrict trading of shares issued to directors and large shareholders of the acquired companies for up to 18 months, mitigating immediate market impact.
Risks and Conditions Ahead
The merger and placement are subject to multiple approvals, including shareholder votes, court sanction, and regulatory consents such as FIRB approval. The company has outlined key risks including weather and climate variability, commodity price fluctuations, water availability, labor supply challenges, and integration risks associated with the merger. The placement is fully underwritten but conditional on the merger’s completion and receipt of necessary approvals.
Duxton Farms’ management and board unanimously recommend the merger, emphasizing the strategic benefits of scale, diversification, and enhanced operational capabilities. The company’s experienced operations team and access to specialist agricultural knowledge underpin confidence in delivering long-term value creation.
Bottom Line?
As Duxton Farms embarks on this transformative merger and capital raise, investors will be watching closely for shareholder approvals and regulatory clearances that will unlock the next phase of growth and diversification.
Questions in the middle?
- Will the merger receive the necessary shareholder and court approvals without delay?
- How will the integration of the four Merger Companies impact operational efficiency and earnings?
- What are the potential market reactions to the significant share issuance and escrow arrangements?
