Why Engenco Directors Urge Shareholders to Accept Elphinstone’s 30.5c Bid

Background to the Offer

Engenco Limited (ASX: EGN), an Australian engineering firm serving sectors from rail to power generation, is currently the subject of an off-market takeover bid by Elph Investments Pty Ltd, a member of the Elphinstone Group. The group already holds a controlling 68.53% stake in Engenco, and the offer price stands at 30.5 cents per share in cash.

Elph Investments’ bid aims to acquire all remaining shares, with the offer conditional on increasing its relevant interest to at least 92.13%. Achieving this threshold would enable Elph to compulsorily acquire any outstanding shares, effectively consolidating full ownership.

Independent Expert’s Valuation and Board Recommendation

RSM Corporate Australia Pty Ltd, appointed as the Independent Expert, has assessed the fair value of Engenco shares at 31.8 cents based primarily on a net assets valuation approach. This places the offer price below fair value, leading the expert to conclude the offer is “not fair but reasonable” to shareholders not associated with Elph Investments.

The rationale for deeming the offer reasonable includes the significant pre-existing ownership by Elph, the implied control premium relative to recent trading prices, and the historically low liquidity of Engenco shares. The expert notes that the offer price represents a 45% premium over the share price before the bid announcement, reflecting the control premium despite falling short of the net asset valuation.

Engenco’s Independent Board Committee, comprising independent directors Vincent De Santis, Scott Cameron, and Chris McFadden, alongside Managing Director Dean Draper, unanimously recommends shareholders accept the offer if they are likely to sell in the foreseeable future. The recommendation highlights the attractive premium, the low likelihood of a competing bid, and the certainty of cash consideration as key benefits.

Risks and Considerations for Shareholders

Shareholders face a clear choice: accept the offer and realise an immediate premium over recent trading prices or reject it and retain exposure to Engenco’s potential longer-term value, accepting associated risks. These risks include further share price volatility, reduced liquidity due to Elph’s increasing stake, and uncertainty over dividend policy and corporate strategy under potential full ownership by Elphinstone.

The offer remains conditional, and it is uncertain whether Elph Investments will satisfy or waive all conditions, including the minimum acceptance threshold. Shareholders who accept the offer while it is conditional may face delays in payment and restrictions on dealing with their shares until conditions are met or the offer lapses.

Market and Regulatory Implications

Should Elph Investments reach the compulsory acquisition threshold, Engenco could be delisted from the ASX, a move that would significantly impact minority shareholders. The Elphinstone Group has indicated intentions to review the company’s listing status and undertake a strategic review of operations post-takeover.

The market has responded positively to the takeover announcement, with Engenco shares trading consistently below the offer price since the bid was announced, underscoring the attractiveness of the cash offer amid low liquidity conditions.

Next Steps for Shareholders

Shareholders are urged to carefully consider the Target’s Statement and seek independent financial, legal, and tax advice tailored to their circumstances. The offer closes on 30 May 2025 unless extended. Shareholders should monitor announcements for any changes to offer terms or conditions.