A407: SNC-Lavalin clears to sell part of its stake

A court has given the go-ahead for SNC-Lavalin to sell part of its stake in the 407 toll highway, allowing the struggling engineering firm to rake in $ 3.25 billion to pay off its debt.

This news has been well received by investors, since the company’s stock has had its best session since June 11 on the Toronto Stock Exchange, closing at $ 17.35, up 6.05%, or 99 cents . Over the last year, SNC’s stock has erased nearly 65% ​​of its value, even touching a low of 15 last year.

In a decision on Friday, the Ontario Superior Court dismissed Cintra Global’s attempt to derail the transaction with the Canada Pension Plan Investment Board (CPPIB) in order to acquire this 10-per-cent interest. % in 407 International – the operator of this Ontario asset.

According to the company, the court found that Cintra, a subsidiary of the Spanish Ferrovial SA, had waived its right of first refusal under an agreement reached in 2002.

A payment of $ 3 billion will be made to the company at the close of the month, scheduled for this month, and the remaining $ 250 million will be paid over the next decade.

In an e-mailed note to clients, Derek Spronck of RBC Capital Markets described the announcement as “positive,” saying it would give investors a clearer picture.

“We believe the confirmation […] is positive in that it will improve the visibility of the company’s debt reduction plan,” the analyst wrote.

SNC-Lavalin, which is currently facing multiple challenges, will use this amount to repay a portion of its debt – which includes a payment of $ 600 million to the Caisse de dépôt et placement du Québec (CDPQ).

Still present

The company will retain only a 6.8% interest in this asset that pays steady dividends and has attractive growth potential in the Greater Toronto Area due to increased attendance.

In April, SNC-Lavalin announced the sale of part of its 16.77% interest in the 407 toll highway to the Ontario Municipal Employees Retirement System (OMERS). This had set the stage for a judicial battle between Cintra and OIPRC, which held 43% and 40% respectively of this asset.

SNC-Lavalin canceled the transaction in May, paying OMERS a termination fee of $ 81 million, indicating that the CPPIB was entitled to match the initial offer.

On Friday, Judge Glenn Hainey wrote that OMERS acted “solely as a financial investor”, citing the 2002 agreement signed by Cintra in which it waives its right of first refusal involving buyers who do not have competing interests in areas such as construction or road projects. Cintra claimed that OMERS was a competitor and that the institution could not benefit from a derogation from the cartel. OMERS owns a 65% interest in the company that manages the Confederation Bridge.

SNC-Lavalin is currently facing a number of challenges, including criticism from the CDPQ, its largest shareholder with a stake of approximately 20%.

Since the beginning of the year, it has issued three warnings about its financial results, announced its intention to stop bidding on fixed-price contracts and to explore options for its resource sector, which could include through a sale of its oil and gas activities.

Last week, SNC-Lavalin also trimmed its quarterly dividend by 80% and posted a net loss of $ 2.12 billion.

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