Introduction to Normal Course Issuer Bids

In a strategic move aimed at enhancing shareholder value and signaling confidence in its stock, Enerflex Ltd., a leading energy infrastructure provider, has announced intentions to conduct a normal course issuer bid (NCIB). This initiative involves Enerflex repurchasing its own shares from the market, a common practice in Canada used by companies to manage their share capital and influence stock prices.

What is a Normal Course Issuer Bid (NCIB)?

A normal course issuer bid is a Canadian term for a stock buyback program where a publicly traded company purchases its own shares from the market. The primary goal is to reduce the number of outstanding shares, which can increase earnings per share (EPS) and potentially boost the stock price by reducing supply and increasing demand. This strategy is often employed when a company believes its shares are undervalued in the market[1][3].

Enerflex's Strategic Decision

Enerflex's decision to initiate a normal course issuer bid reflects its management's confidence in the company's future prospects and its belief that current market valuation does not accurately represent its true worth. By repurchasing shares, Enerflex aims to return value to its shareholders, optimize its capital structure, and possibly offset any share dilution resulting from stock options or other equity issuance programs.

Key Objectives of NCIBs

• Increase Earnings Per Share (EPS): By reducing the number of outstanding shares, each remaining share absorbs a larger portion of future earnings, potentially increasing EPS and attracting investors.
• Enhance Shareholder Value: NCIBs can send a positive signal to the market, indicating that the company's management believes the stock is undervalued, which may lead to increased investor confidence and higher stock prices.
• Manage Share Capital: Companies use NCIBs to adjust their share capital in response to market conditions or strategic needs.
• Ward Off Hostile Takeovers: Repurchasing shares can reduce the availability of stock for potential acquirers, providing greater control over the company.

Regulatory Framework for NCIBs in Canada

In Canada, NCIBs are regulated by stock exchanges and the Canadian Securities Administrators. To conduct an NCIB, a company must file a Notice of Intention with the relevant stock exchange and receive approval. The TSX, where many Canadian companies are listed, has specific rules governing NCIBs:

Key Rules for NCIBs on the TSX

• Purchase Limits: Companies can repurchase up to 5% of their outstanding shares or 10% of the public float over a 12-month period, whichever is greater[2][5].
• Disclosure Requirements: Issuers must disclose their intentions through press releases and provide detailed calculations of their public float when necessary.
• Market Impact: Purchases must be made at prices that do not unduly influence the market, ensuring fairness and transparency for all stakeholders.

Process and Execution

For Enerflex to commence its NCIB, it will need to follow these steps:

1. File a Notice of Intention: Submit a Form 12 Notice to the TSX detailing the scope of the buyback plan.
2. Issue a Press Release: Inform the public and investors of the intention to proceed with the NCIB, pending TSX approval.
3. Establish Purchase Parameters: Define the maximum number of shares to be repurchased and ensure compliance with regulatory limits.
4. Execute Purchases: Buy back shares over time, adhering to market rules and ensuring transactions do not artificially inflate the stock price.

Impact and Benefits

The NCIB can have several benefits for Enerflex and its shareholders:

• Share Price Appreciation: Reducing the number of shares available can lead to higher stock prices due to increased demand.
• Increased EPS: By reducing outstanding shares, future earnings are distributed among fewer shareholders.
• Confidence in Management: An NCIB signals confidence in the company's prospects and financial health.

Conclusion

Enerflex's decision to pursue a normal course issuer bid highlights its proactive approach to managing its share capital and enhancing shareholder value. This strategic move not only underscores the company's belief in its undervalued stock but also positions it well for future growth and success in the competitive energy sector.