Toromont formalizes hostile bid for Enerflex

TORONTO (Reuters) - Toromont Industries Ltd (TIH.TO) formalized its hostile takeover offer for Enerflex Systems Income Fund EFX_u.TO on Thursday, after its talks with the supplier of equipment for the oil and gas industry failed to bear fruit.

Toromont made a C$597 million ($568 million) offer to acquire Enerflex in October. Enerflex then formed a special committee of independent directors to weigh the bid.

But Toromont, which sells, rents and services a broad range of Caterpillar heavy construction and industrial equipment, and makes and installs compression systems, said there has been no meaningful progress toward a negotiated transaction since then. It is now taking its offer directly to shareholders with the formalized offer.

Toromont and Enerflex are the No. 1 and No. 2 largest compression manufacturers in Canada.

If it is successful in its bid, Toronto-based Toromont would roughly double its presence in the natural gas compression market and would become one of the dominant players in the North American industry. It would also give the company more exposure to growing international markets.

"The compression side of their (Toromont's) business is where their greatest growth potential lies, so if they can ramp up on that side of their business then their future growth profile looks better," said Neil Forster, an analyst at Genuity Capital Markets.

Forster said he thinks there is a 75 percent chance of the deal going through, given there is a low likelihood of a white knight bidder stepping forward.

Possible bidders that already have substantial natural gas compression assets include Exterran Holdings Inc (EXH.N) and Cameron International Corp (CAM.N).

Another reason Forster said the deal will likely go through is that holders of about 17 percent of Enerflex's trust units have already agreed to tender to Toromont's offer.

Toromont itself owns a 9 percent stake in the Calgary, Alberta-based company. It needs at least two-thirds of Enerflex's outstanding trust units for the deal to go through.

Toromont's offer is for C$13.50 a unit. On Thursday afternoon, Enerflex was up 6 Canadian cents, or 0.4 percent, at C$14.10 on the Toronto Stock Exchange, suggesting that investors expect Toromont to sweeten its bid.

Shares of Toromont were down 69 Canadian cents, or 2.6 percent, at C$26.38 in Toronto.

The offer is expected to expire in early January.

($1=$1.05 Canadian)

(Reporting by John McCrank and Euan Rocha; editing by Rob Wilson)