UPDATE: Enerflex Soars After Toromont Proposal: Forms Committee

(Adds context, analyst comment in fourth through ninth paragraphs, updates stock movement in third paragraph.)

Enerflex Systems Income Fund (EFXFF, EFX.UN.T) closed up nearly 38% Monday, well above a proposed bid from Toromont Industries Ltd. (TMTNF, TIH.T) that values Enerflex at C$13.50 a unit.

Toromont said late Friday that it would pay at least 50% cash in the proposed transaction, with the balance in Toromont common shares, adding that the proposal represents a premium of about 33% to the volume-weighted average trading price of Enerflex units in the 20 trading days up to and including Friday.

Enerflex shares closed up C$4.08 to C$14.15 Monday. Its American shares closed up US$3.76, or 37.9%, to US$13.68.

Investors may be bidding Enerflex shares higher than the offer price in anticipation that Toromont will have to raise its bid, or that a higher, rival offer may emerge.

An analyst familiar with the deal said Toromont's bid would likely need to be higher, or have a greater weighting of cash than 50%, because Enerflex's international position in the natural gas compression is relatively unique.

"Enerflex has really transformed itself into an international player in gas compression, and that's a hard business to grow," he said.

Desjardins Securities told its clients Monday that acquiring Enerflex would allow Toromont to grow internationally because about 60% of Calgary-based Enerflex's revenue comes from outside Canada.

Desjardins rated the C$13.50 offer as fair, but said scrutiny from antitrust regulators may become a factor since Toromont and Enerflex are the two largest gas compression manufacturers in Canada.

Toromont, based in Toronto, is the largest natural gas compression manufacturer in Canada and also operates one of the world's largest dealerships for Caterpillar Inc. (CAT) construction equipment.

Enerflex said Monday that a special committee of independent directors of its administrator will consider Toromont's proposal. But it noted that Toromont has yet to make a formal offer and also said it "takes issue" with certain statements in Toromont's press release Friday.

In that release, Toromont said it had held talks with Enerflex over the past several years about the possibility of combining their gas-compression businesses, but that Enerflex's top management and board had "thwarted" any possible transaction in their "desire to maintain control" of Enerflex.

-By Edward Welsch, Dow Jones Newswires; 613-237-0669; [e-mail]

(Carolyn King in Toronto contributed to this report.)