China's CCCC Buys Aecon for $930 Million in Canada Push

(Bloomberg) -- Aecon Group Inc. agreed to be acquired by a unit of China Communications Construction Co. for C$1.19 billion ($930 million) in cash, giving the Canadian company more heft to bid on global infrastructure projects.

Aecon, which helped build Toronto’s landmark CN Tower, said in a statement CCCC International Holding Ltd. would pay C$20.37 a share, or 23 percent higher than Aecon’s closing price Wednesday. The stock closed up 19 percent at C$19.73 in Toronto.

“This is a very positive outcome for Aecon and our key stakeholders," Aecon Chairman Brian Tobin said in the statement. The company will continue to be based in Canada.

CCCI’s size and financial strength will augment Aecon’s access to capital and its ability to compete for larger and more complex projects around the world as governments in Canada, the U.S. and elsewhere pledge to boost spending on roads, bridges and other infrastructure.

Any acquisition over C$379 million by a state-owned enterprise is subject to review and this one may also be subject to a national security review. Prime Minister Justin Trudeau said the review would ensure the deal was in the best interest of workers and communities and aligned with the government’s concerns around safety and security.

“This is an extremely important issue. Canada as a general rule is open to investment. We know that companies and folks investing in Canada and building our economy is a good thing but we have to make sure that its in the best interests of Canadians," he said during an event in Burlington, Ontario. "This is something we take very, very seriously.”

‘Excellent Outcome’

The Toronto-based company confirmed in August it was exploring a sale after a Bloomberg report. The deal price is 42 percent higher than its price prior to that disclosure.

The sale, subject to standard approvals, is expected to close by the end of the first quarter of 2018, the companies said. If Aecon were to find another buyer, it would be required to pay a C$50 million termination fee. If CCCI backs out, it’s subject to a C$75 million termination fee.

“This is an excellent outcome for Aecon shareholders because we don’t believe there is another entity now willing to pay this type of price," said Maxim Sytchev, an analyst with National Bank of Canada.

“The transaction will require approvals, including the competition act,” Sytchev said. “Even though we have seen a hiatus from Chinese entities buying commodity assets in Canada, we do not envision any hurdles to the deal completion."

China Expansion

The biggest hurdle may be government concerns about Aecon’s exclusive work on Canada’s Candu nuclear reactors, said Jacob Bout, an analyst at Canadian Imperial Bank of Commerce.

Aecon has been without a permanent chief executive officer since last November, when executive chairman and founder John Beck replaced Terrance McKibbon on an interim basis.

Activist investor Eric Rosenfeld of New York-based Crescendo Partners was nominated to Aecon’s board in June. Rosenfeld held 214,000 shares as of July 7, according to data compiled by Bloomberg.

Aecon operates companies across the mining, infrastructure, energy and services industries, building projects from factories, roads and sewers to theaters, book stores and hotels, according to its website.

CCCI’s Beijing-based parent is one of the largest engineering and construction companies in the world. Its core businesses include infrastructure construction and design and dredging, with revenue of $62 billion.

Bank of Montreal and Toronto-Dominion Bank acted as financial advisers to Aecon, while Davies Ward Phillips & Vineberg provided legal advice. Barclays Plc provided financial advise to CCCI while Blake, Cassels & Graydon provided legal advice.

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