Blocked Aecon deal highlights security

Decision could signal infrastructure sector needs special protection

MONTREAL— The federal government’s decision to block a Chinese state-owned company’s proposed $1.5-billion takeover of Aecon Group Inc. signals Canada’s infrastructure sector has joined the oilsands, defence and aerospace industries in requiring special security protection, a Canadian security expert said.

“The Aecon decision suggests that any major takeover of a major Canadian critical infrastructure company would be looked at very closely on national security grounds,” said Wesley Wark, director of the Security and Policy Institute at the University of Ottawa.

Economic Development Minister Navdeep Bains confirmed the government decided to block the Toronto-based company’s deal to be acquired by CCCC International Holding Ltd. after markets closed Wednesday.

Ottawa announced a full national security review of the transaction in February as experts urged the government to proceed cautiously when weighing any investment bids by Chinese state firms and to be as transparent as possible in reviewing the proposed deal.

“This is really about following the advice and the feedback given to me by the national security agencies,” he said in an interview.

“I never have and never will compromise on national security but at the same time we are open to investments, and trade and economic opportunities not only with China but with many other countries in the world,” he said after speaking to students at Montreal’s HEC business school.

Bains declined to directly comment on whether the decision signals the government is taking a new approach to protecting Canada’s infrastructure sector.

“This is not about one country or one transaction. This is a robust process that we have in place under the Investment Canada Act.”

Bains didn’t provide details about what specifically prompted the decision, and spokesperson Karl Sasseville said Thursday that the government can’t comment on specifics when it comes to national security issues. He also said that under the Investment Canada Act, each transaction is evaluated based upon its facts and merits.

Aecon has a long history of participation in Canadian construction and engineering projects such as the CN Tower.

The Aecon takeover bid was the test case and other large companies would also likely face a deep security review, depending on the nature of the purchaser, Wark said.

While that doesn’t mean all takeovers would be ruled out, concerns over state-owned companies, especially Chinese ones, extends to other acquisitions in the construction sector by foreign buyers, he said in an interview.

“I think the big news coming out of Aecon is that critical infrastructure protection is going to get a very, very close look at in almost all circumstances.”

Wark said the government made the correct decision and possible retaliation from the Chinese government depends on how the decision is explained to them by Ottawa.

Aecon shares plummeted in Thursday trading and closed at $14.67, down $2.67 or 15.4 per cent — their lowest level since late August, when the company announced it was launching a strategic review that included a potential sale.