Engro Corp, Dawood Hercules agree to restructuring deal

KARACHI: Engro Corporation Limited (Engro Corp) and Dawood Hercules Corporation Limited (DH Corp), the country's largest conglomerates, have agreed to a restructuring plan aimed at boosting investment opportunities and unlocking value for shareholders.

“The Board of Engro Corporation Limited (Engro Corp) in its meeting held on May 03, 2024 has given an in-principle approval of the proposed restructuring of Engro Corp and DH Corp by way of a Scheme of Arrangement,” the Engro Corp said in a statement to the Pakistan Stock Exchange (PSX) on Monday.

“Both companies will now finalise the terms of the proposed restructuring and jointly appoint advisors for a Scheme of Arrangement to be presented to the respective Boards for approval and execution."

The plan aims to build financial synergies and enhance returns to shareholders of both companies. DH Corp, the largest shareholder of Engro Corp, proposed the restructuring option on April 19, 2024.“This option was recommended with the goal of building financial synergies that are value additive to the enterprise, while enhancing returns to shareholders of both companies,” read the notice.

The company said the restructuring shall be achieved through a Scheme of Arrangement to be sanctioned by the relevant High Court, “whereunder (i) DH Corp will be demerged into two legal entities whereby all assets and liabilities of DH Corp (other than its investment in Engro Corp) will be carved out into a new company, which will ultimately be held by current shareholders of DH Corp and following such carveout, DH Corp will only be holding investment in Engro Corp".

Moreover, “shares in Engro Corp held by the shareholders of Engro Corp (other than DH Corp) will vest into DH Corp in exchange whereof such shareholders will be issued shares of DH Corp in the same proportion in which they hold shares of Engro Corp, which means that such shareholders will have the same proportionate economic shareholding in Engro Corp indirectly through DH Corp.

“Consequently, Engro Corp will become a wholly owned subsidiary of DH Corp,” it read.Engro shared that given the resulting ownership structure, and the fact that the majority of DH Corp’s capital flows are tied to Engro Corp, the management of DH Corp has also proposed that DH Corp be rebranded to ‘Engro Holdings Limited.’

It said that upon careful consideration of the proposed restructuring, Engro Corp finds it to be a value-accretive proposition that should improve returns to shareholders.

The proposed restructuring would allow the capital at play within the Engro system to be more productive, “especially in a challenging macroeconomic environment that currently does not appear conducive for large-scale projects”.

The company said that over the years, Engro Corp has also received consistent feedback from its minority shareholders to consider broader avenues and means of capital deployment to improve returns to shareholders through a more flexible capital allocation.

“It is, therefore, advantageous to them as DH Corp is a sector-agnostic capital allocator with a track record of sound investments in a wide range of sectors, while Engro Corp continues to allocate capital to develop and manage complex large-scale industrial projects.

“The proposed restructuring …would result in a broader array of opportunities for capital deployment, thus improving potential returns for all shareholders."

“Furthermore, this would be done with no material increase in costs, as DH Corp (or Engro Holdings, as it will be known) would be managed by a team of investment professionals.”

The company said that the proposed restructuring benefits all stakeholders in the system, without any disadvantage to anyone.

“Engro Corp’s current shareholders, who become Engro Holdings shareholders, would continue to earn returns on their indirect investment in Engro Corp through Engro Holdings, while also participating in returns generated from Engro Holdings’ other investments,” it added.

Engro Corp's Chairman, Hussain Dawood, said the restructuring demonstrates the company's commitment to progress and aligns with the interests of all shareholders, employees, and communities connected to Engro.

"By widening our investment horizon, Engro will be further enabled to partner with Pakistan to solve some of the most pressing issues of our time," he added.