Quebec could be hostile to SNC sale
Company a ‘jewel’: minister; not for sale: CEO
MONTREAL • In a province that protects its own and has a history of giving foreign buyers a frosty reception, Quebec’s political will is seen as a major hurdle for any suitor circling SNC-Lavalin Group Inc.
“(Quebec economy minister Jacques) Daoust has repeated many times over the last few months that SNC-Lavalin is a jewel of Quebec,” said Melissa Turgeon, press attaché for the Quebec Ministry of the Economy, Innovation and Exports, in an email.
Daoust says the president of SNC-Lavalin assured him that today the Canadian engineering giant is not for sale.
In an email to the Financial Post, Turgeon said the minister spoke with the president and chief executive officer of SNC-Lavalin, Robert Card, Wednesday morning and was told the company is not currently in takeover talks with potential buyers.
SNC-Lavalin Group Inc. has been approached “informally” by at least two large foreign engineering firms that are weighing a possible takeover, according to Financial Post sources familiar with events at the Montreal-based company.
Shares of SNC rose as much as 3.75 per cent in Toronto to hit an intraday high of $47.25 on Wednesday morning before settling at $46.51.
“I like the idea of any takeover. We want all of our companies to get taken over if the price is right,” said David Taylor of Taylor Asset Management, which is a top-10 SNC shareholder on behalf of its clients.
“People look at this one as a company that has struggled, it’s got some good assets, it’s out of favour, the valuation is attractive and it’s cheap relative to its peers.”
Among the potential buyers said to be interested are giant Spanish civil and engineering firm Actividades de Construccion y Servicios S.A. (ACS) and Australia’s WorleyParsons.
Worley Parsons wasn’t immediately available for comment.
ACS isn’t interested in SNC-Lavalin, Juan Jose Diaz Clavel, a Madridbased spokesman for the company, told Bloomberg.
A primary concern for SNC and its shareholders is the 10-year ban on federal public works contracts that the company could face if it is convicted of criminal corruption charges laid by the RCMP in February against the firm and two of its corporate affiliates.
SNC executives have said they hope the company will instead be able to pay a fine in place of a guilty plea.
Taylor says that a takeover could be one way to avoid that contract ban.
“I’m not sure you can ever escape the financial penalty, but that 10-year ban, you might be able to elude that by having the business in another entity,” he said.
The likelihood of a foreign strategic player taking out the entire company is relatively small, according to Dundee Capital Markets analyst Maxim Sytchev.
He says he doesn’t believe that local Quebec powers would allow the potential loss of a head office, though having local buyers involved would make the situation more “politically palatable.”
“If there is a ‘ Quebec Inc.’ solution which is part of their whole takeover plan, that’s one thing. But you should never underestimate the political underpinning in that geography,” he said. The province has been hostile to foreign takeovers in the past.
When U.S.-based Lowe’s Companies Inc. attempted to buy the Rona Inc. home-improvement retail chain in 2012, the government declared the Quebec company “a major strategic asset for Canada.”
Sytchev says it’s more likely that Canadian pension funds would acquire the hard assets while waiting for SNC’s engineering and construction division to stabilize.
“As usual, we never comment on market rumours regarding companies we invest in,” said Maxime Chagnon, senior director of media relations at the Caisse de dépôt et placement du Québec, which holds a 12.17% stake in SNC.
Sytchev says that if there was a takeover for the entire asset base it would need to happen before SNC begins selling its Highway 407 stake during the last quarter of 2015.
“If people are looking at the entire portfolio they have to act now, if they are looking at pieces, then they can wait,” said Sytchev.