Duxton Farms’ Orchard Acquisition Faces Risks Amid Weather and Market Volatility

Background and Transaction Overview

Duxton Farms Ltd, an ASX-listed agricultural investment company, has proposed a scheme of arrangement to acquire all preference shares of Duxton Orchards Pty Ltd, an unlisted apple orchard operator in South Australia. The transaction is part of a broader merger that also includes Duxton Bees, Duxton Dried Fruits, and Duxton Walnuts, aiming to create a larger, diversified agricultural platform.

The scheme consideration offers Duxton Orchards preference shareholders shares in Duxton Farms at a ratio of 0.043 shares per preference share, with an option to receive up to 20% of the consideration in cash. The cash component is calculated based on a Duxton Farms share price of $1.25. The transaction is subject to customary shareholder and court approvals, as well as regulatory clearances including FIRB.

Independent Expert’s Valuation and Opinion

Leadenhall Corporate Advisory Pty Ltd was engaged as the independent expert to assess the merits of the scheme. Their valuation of Duxton Orchards’ preference shares, based on a net asset approach, concluded a nil value, reflecting operating losses and adjustments for lease liabilities and recent financial performance. In contrast, the scrip consideration was valued between $0.04 and $0.05 per preference share, based on recent Duxton Farms share trading and a cross-check against net tangible asset multiples.

Leadenhall concluded the transaction is fair because the value of the consideration exceeds the assessed value of the shares on a control basis. The transaction was also deemed reasonable, with advantages such as increased scale, diversification, liquidity, and access to capital outweighing disadvantages like uncertainty of scrip value and potential tax implications.

Strategic Rationale and Operational Synergies

The merger is expected to enhance Duxton Farms’ market position by broadening its geographic and commodity exposure across cropping, horticulture, apiary, and livestock. The combined group will benefit from operational synergies including increased purchasing power, internalised corporate functions, and knowledge sharing among management teams. The merger also offers shareholders improved liquidity and the potential for a reduced discount to net asset value.

Duxton Farms’ board and management team will continue to lead the merged entity, with plans to integrate operations while maintaining the distinct expertise of each business unit. Escrow arrangements will apply to shares issued as consideration, limiting short-term liquidity for certain shareholders.

Risks and Next Steps

Key risks include weather volatility impacting agricultural yields, fluctuations in commodity prices, regulatory changes, and operational challenges inherent in integrating multiple agricultural businesses. The transaction remains subject to shareholder votes at meetings scheduled for October 2025 and subsequent court approvals.

Investors should monitor the outcomes of these meetings, any supplementary disclosures, and the market’s reception to the scrip consideration issuance. The realization of synergies and the potential emergence of superior proposals remain important factors for future developments.