An independent expert has judged Coote Industrial's $4 million convertible note offer to Elphinstone Group as reasonable but not fair due to the substantial share discount.
The release of the independent expert's report coincides with the company recommending shareholders vote for the issue of shares and convertible notes to Elph, part of the Elphinstone Group, at an extraordinary meeting next month.
"In our opinion, the Transaction is not fair because the value of the consideration Elph will provide for each Coote share is less than the value of a Coote share," independent expert BDO Kendalls said in its report.
"However, we consider the Transaction to be reasonable because the advantages of the Transaction to Shareholders are greater than the disadvantages.
"In particular, we note the difficulties Coote has had previously trying to secure funding, the time and costs that would be incurred if Coote were to attempt to raise alternative funding and the financial position of Coote at the time of initial contact with Elph."
In July, Coote announced it had struck a $4 million convertible note deed with Elph, with the notes priced at 17.15 cents each.
Elph also subscribed to 6.5 million Coote shares at 20 cents, raising $1.3 million.
Both raisings are subject to shareholder approval as Elph will hold more than 20 per cent of Coote should shareholders approve both issues.
Funds raised will enable Coote to pay $3.5 million to Greentrains, part of a condition the latter had to secure a $34 million debt facility with the Commonwealth Bank of Australia.
Elph, which is controlled by Dale Elphinstone, also invested $6.5 million into Greentrains for a 19.8 per cent shareholding.
Funds raised by Greentrains were used to pay the first $44 million tranche to Coote for the purchase of locomotives early last year.
The second $35 million tranche is currently progressing, with Greentrains sourcing a new financier to provide debt facilities.
Shares in Coote closed unchanged at 37 cents today.
