A toll road stake already travelled
BMO Capital Markets and HSBC Securities, the two advisers retained by SNC-Lavalin
Group Inc. for the sale of the Montreal-based engineering company’s stake in southern Ontario’s Highway 407, are embarking on a path that’s been travelled before.
In the 16 years that SNC has been an owner of the toll highway, it has made at least two other attempts to dispose of all or some of its stake. So far, one of those attempts has been successful.
The story starts in the spring of 1999 when SNC invested $175 million and became a 26.92 per cent shareholder. The other shareholders were Grupo Ferrovial (now Cintra) and Quebec’s Caisse de dépôt et placement du Québec.
But SNC-Lavalin’s stake was reduced on two occasions three years later. According to its 2002 annual report, that interest fell to 22.58 per cent when the holder of a convertible debenture “formally convert(ed) its Debenture into (407) common shares.” A few months later, SNC sold 45 million of its 175 million shares, a move that reduced its ownership interest to 16.77 per cent. SNC received $177.6 million, which generated a net gain of $121.3 million. Through that sale SNC received the return of its original investment.
In 2010, SNC made another attempt to dispose of some of its ownership. It formed a new company, Trans-Axio Highway Concession, and intended to sell 10 per cent of the 407 to the public. But the 10 per cent wasn’t coming from its own holdings.
Instead the 10 per cent was coming from major shareholder, Cintra, which wanted to reduce its stake to 43.23 per cent, because of total debt considerations. It made that decision largely on the grounds that under accounting rules it was required to allocate its share of the 407 debt.
SNC decided to offer that 10 per cent stake because it enjoyed rights of first refusal: initially the block was offered to the Canada Pension Plan Investment Board, which agreed to purchase it for $894.3 million. But under the rights enjoyed by a founding shareholder, SNC opted to buy the stake, get the public markets to finance it — and take a spread on the way through. The market balked at that process and the deal failed.
As a result, CPPIB acquired its initial stake. Later, the pension fund acquired another 30 per cent when it bought Intoll Group, an Australian fund manager. At 40 per cent, CPPIB is the highway’s second-largest shareholder.
While there have been no ownership changes since late 2010, there have been a number in the 15 years that the highway has been in privatesector hands.
For instance, Caisse de dépôt, an original investor, was the first to leave when it sold its block to Macquarie Infrastructure Canada. (Macquarie also bought the shares sold by SNC in 2002.) In 2009, after the financial crisis, Macquarie rolled up that stake to Intoll Group — giving it an overall 30 per cent stake that was later sold to CPPIB.
Last July when SNC mused about selling its block, CPPIB, which is understood not to have a priority right of sale as Ferrovial does, was quoted as saying, “we would be interested in considering the purchase of any additional shares that become available through the right of first refusal that are available to existing investors or otherwise.”