Engro Corporation Limited (Engro Corp) and Dawood Hercules Corporation Limited (DH Corp), two of the largest conglomerates in the country, have reached an agreement on a restructuring plan designed to enhance investment opportunities and create value for shareholders.
The decision to restructure Engro Corp and DH Corp was approved by the Board of Engro Corporation Limited during a meeting on May 3, 2024. The proposed Scheme of Arrangement will now be finalized by both companies, with the assistance of appointed advisors, and presented to their respective Boards for approval and implementation.
The primary objective of this plan is to establish financial synergies and improve returns for shareholders of both entities. DH Corp, being the major shareholder of Engro Corp, put forward the restructuring proposal on April 19, 2024, with the aim of creating value for shareholders through financial synergies.
The restructuring process will involve a Scheme of Arrangement that will be approved by the relevant High Court. As part of this arrangement, DH Corp will be split into two separate legal entities, with all assets and liabilities (excluding its investment in Engro Corp) transferred to a new company. Following this transfer, DH Corp will retain its investment in Engro Corp.
Furthermore, the shares held by Engro Corp shareholders (excluding DH Corp) will transfer to DH Corp, with these shareholders receiving DH Corp shares in return based on their current ownership in Engro Corp. This will result in the same economic interest in Engro Corp through DH Corp. As a result, Engro Corp will become a wholly owned subsidiary of DH Corp.
Given this new ownership structure and the significant capital flow from DH Corp to Engro Corp, DH Corp’s management has proposed rebranding to ‘Engro Holdings Limited.’ Engro Corp views this proposed restructuring as a value-enhancing opportunity that will benefit shareholders. The restructuring aims to make capital utilization within the Engro system more efficient, particularly in a challenging economic environment. Engro Corp has received feedback from minority shareholders over time to explore different capital deployment strategies for better returns. The flexibility offered by DH Corp, as a sector-agnostic capital allocator with a history of successful investments, complements Engro Corp’s focus on large-scale industrial projects.
The proposed restructuring plan aims to provide a wider range of opportunities for capital deployment, ultimately leading to improved potential returns for all shareholders. Importantly, this will be achieved without any significant increase in costs, as DH Corp (or Engro Holdings, as it will be known) will be overseen by a team of skilled investment professionals.
According to the company, this restructuring plan will benefit all stakeholders in the system, ensuring that no one is at a disadvantage. Engro Corp’s current shareholders, who will become Engro Holdings shareholders, will continue to earn returns on their indirect investment in Engro Corp through Engro Holdings. Additionally, they will also have the opportunity to participate in the returns generated from Engro Holdings’ other investments.
Hussain Dawood, the Chairman of Engro Corp, emphasized that this restructuring plan reflects the company’s commitment to progress and aligns with the interests of all shareholders, employees, and communities associated with Engro. He further stated that by expanding their investment horizon, Engro will be better positioned to collaborate with Pakistan in addressing some of the most critical challenges of our time.
