ELDERS LIMITED — M&A Activity 2012

Oct 3, 2012

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4 October 2012

Market Update

Elders (ASX: ELD) has noted the announcement made to the ASX this afternoon by Ruralco Holdings Limited (ASX: RHL).

In order to ensure the market is properly informed as to the content of correspondence between Ruralco and Elders, Elders attaches to this announcement Ruralco’s letter to Elders dated 10 September 2012 and Elders' letter to Ruralco dated 17 September 2012.

Further Comment:

Malcolm Jackman Chief Executive Officer 0439 642 876

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10 September, 2012

Strictly Private & Confidential

Mr J Ballard Chairman Elders Ltd

By Email: bates.ballard@bigpond.com

Dear John,

Further to the discussion between Malcolm Jackman and John Maher on 6 September 2012, I have set out below a proposal for the consideration of the Board of Elders Ltd (‘Elders’).

RHL is of the view that a transaction opportunity exists between RHL and Elders that has the potential to:

• stabilise Elders financial position by reducing debt to sustainable levels; and

• restore value for Elders shareholders through a value accretive transaction with synergies.

We understand the Elders Board is of the view that Elders shareholders will be better placed by continuing with its current strategies. Based on what has been publically disclosed, RHL, as Elders’ largest shareholder, does not agree with this position:

• the sale of the Automotive division will be hard to achieve. Unless the multiple received exceeds Elders’ current debt metrics, Elders’ overall debt metrics will be negatively impacted.

• the remaining Forestry operations continue to drain cash and the complex nature of these assets make a near term sale at acceptable prices challenging.

• a return to sustainable underlying earnings growth within the core rural services business is likely to be some years away given constraints imposed by the current capital structure.

• we expect that debt pressures will increase not decrease in the short term. It is evident from the trading strategies currently being employed by Elders, that it may be experiencing cash flow issues.

• given the 2009 recapitalisation failed to adequately address the financial position of Elders, we do not believe the current Board and management would be supported in any subsequent capital raising.

Importantly, RHL notes that any of the initiatives that could be independently undertaken by Elders to improve its position can equally be undertaken whilst progressing a transaction with RHL. Indeed, the transaction with RHL could act as a useful catalyst to improve the outcomes reached pursuant to these other initiatives.

Against this backdrop, we have set out below the proposal that RHL is willing to progress.

Proposal

RHL is proposing a merger of RHL and the Rural Services business of Elders.

ABN 40 009 660 879

2 Collins Street, Hobart TAS 7000 GPO Box 65 Hobart TAS 7001

Phone (03) 6235 1444 Fax (03) 6234 1023

We would expect strong synergies to exist between the two organisations, which would mean that the transaction could meet RHL’s criteria of being value accretive for both sets of shareholders. RHL’s other criteria for the merger are:

• the merged entity should be a pure play rural services company or have a definitive path to this end

• the debt levels of the merged entity should be sustainable and attractive to institutional investors (say less than 2 x LTM EBITDA).

Obviously, there would need to be some restructuring and refinancing of Elders in order to meet these criteria.

In terms of restructuring, there are a number of alternatives, but some form of demerger or ‘held for sale’ structure could be contemplated. This would create one entity held by existing Elders shareholders with the upside exposure to the sale of Automotive and Forestry and another entity held by Elders shareholders with an exposure just to Rural Services. This latter entity would be the subject of the merger. Demerger and ‘held for sale’ structures have been used successfully in a number of similar circumstances.

In terms of reducing debt, the merger of Elders and RHL can act as a catalyst for delivering a sustainable capital structure. In this regard, RHL is relatively lowly geared and therefore any merger will improve overall gearing ratios. A compromise outcome should be able to be reached with Elders Hybrid holders and some debt should be able to be quarantined against the Automotive and Forestry businesses in a ‘held for sale’ structure.

Notwithstanding, it is likely that an equity raising will be required in order to achieve the desired debt metrics. We are of the view that the merger and associated synergies should provide an attractive equity raising backdrop. The equity raising could be open to both Elders and RHL shareholders. RHL has a number of large shareholders who would be willing to support an equity raising in these circumstances.

Conclusion

A number of the transaction steps outlined above need to be undertaken by Elders. Given the nature of the Elders capital structure, no proposal can proceed without the co-operation of the Elders Board. RHL is willing to engage with the Elders Board on a friendly and co-operative basis, to discuss and negotiate merger terms and to otherwise progress the transaction as required. Given the transactions have the potential to relieve Elders of its current debt pressures and be value accretive to Elders shareholders, RHL believes there is a positive obligation on the Elders Board to engage.

Please note that this letter has the full support of the Board of RHL. We look forward to your response.

Yours sincerely

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Richard England

Chairman

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17 September 2012

Strictly Private and Confidential

Mr Richard England Chairman Ruralco Holdings Limited GPO Box 4824 Sydney NSW 2001

Dear Richard,

Thank you for your confidential letter dated 10 September 2012 regarding the potential for a transaction opportunity between Ruralco Holdings Limited ( Ruralco ) and Elders Limited ( Elders ) in regard to our Rural Services business.

The Elders Board is focused on the interests of the company and its shareholders as a whole and in that context, optimising value for all shareholders. We remain firmly of the belief that the strategy announced on 15 August 2012, whereby Elders is taking steps to become a "pure play" rural services business will create significant value for shareholders over time.

As a shareholder, your views are important to us and we remain open to considering any opportunity that has the potential to enhance value for all stakeholders.

The Board of Elders is of the view that now is not the right time to consider merger or sale of the Rural Services business. Our strong preference is to carry through on the path outlined on 15 August. Having done so, we will have a stand alone rural business, and the opportunity to explore options on how to best maximise it.

However, if your timeframe is such that you want to explore the possibility of a transaction while we are working on our current initiatives, you would need to provide more information on what you have in mind before we could give it any meaningful consideration. This would require you to more precisely detail (on the basis of publicly available information of Elders and Ruralco) the transaction that you are proposing. We would ask that you cover such detail including: the specific transaction structure and steps contemplated; the quantum and source of financing; the degree to which existing lender support would be required; the amount of any additional equity to be raised; the specific tax implications of the structure proposed; the approvals required to implement: the synergy potential of the combination; the implications for the non-Rural Services Business; proforma accounts of the two entities and how you see them being valued in the market and the proposed consideration and value to be realised by Elders shareholders.

As you note any such proposal can only be implemented with the cooperation of the Elders Board. It must also provide enhanced value for all shareholders, beyond the current strategy. Of course any future dialogue, should your detailed proposal be of interest to Elders, would be predicated on the basis of appropriate confidentiality and related undertakings from Ruralco.

Elders Limited ABN 34 004 336 636 Registered office: Level 3, 27 Currie Street, Adelaide, South Australia 5000. Postal Address: GPO Box 1176, Adelaide, South Australia 5001.

Telephone: (08) 8425 4000 Facsimile: (08) 8410 1597

Finally, we reiterate our strong preference for deferring any exploration of a merger or sale of our rural services business until next year when we have completed the key divestment strategies that are underway.

We thank you for your continued support and interest in the future of Elders.

Yours sincerely,

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John Ballard Chairman

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