SNC Cancels 407 Sale to OMERS as Canada Pension Seeks Slice
(Bloomberg) -- SNC-Lavalin Group Inc.’s attempt to sell a stake in a Toronto toll road is bumping into legal headaches, though the embattled construction firm says the transaction is still on track to proceed.
SNC terminated a deal to sell a 10% stake in 407 International Inc., the 108-kilometer (67-mile) highway north of Toronto, to the OMERS pension fund for as much as C$3.25 billion ($2.4 billion) in cash, the Montreal-based engineering firm said in a statement Friday. The move, which is subject to break fee of about C$81.3 million, comes after Canada Pension Plan Investment Board exercised rights of first refusal to match the OMERS offer.
Further complicating the matter, another one of the toll-road investors, the Cintra Global unit of Ferrovial SA of Spain, wants to buy about 52% of the stake SNC is selling. SNC contests Cintra’s legal ability to do so, and the matter is going to court, with an expedited hearing scheduled June 21.
Cintra holds 43.2% of highway 407, and indirectly owned subsidiaries of CPPIB own about 40%. SNC owns 17 percent and wants to unload 10 percent.
While the competing interests may delay the sale, SNC says the parties agreed that irrespective of the outcome, it would be permitted to sell the stake “as soon as practicable.”
"The company expects to see the cash in late June/early July," National Bank of Canada’s analysts led by Maxim Sytchev wrote in a note to clients after talking with SNC. "We don’t view the new timeline as outside of the comfort zone in terms of deleveraging and, according to management, the company will not need to amend any facilities to bridge the timeline," they wrote.
A representative for OMERS declined to comment while a representatives for CPPIB didn’t immediately return a request for comment.
SNC said in its statement that Cintra waived its right of first refusal on stake sales to non-competitors under a 2002 agreement. Cintra argues that OMERS is in fact a competitor on infrastructure projects and therefore it should have the right to match the pension fund’s bid.
The stake sale, announced in April, was part of the loss-making company’s efforts to improve its balance sheet. The company reported an unexpected loss in the first quarter and intensified a cost-cutting program to meet annual targets.
SNC rose 1.5 percent to C$27.16 at 10:57 a.m. in Toronto. The stock has plunged 41 percent this year.
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