New obstacles to SNC’s sale of Ontario toll highway

SNC-Lavalin Group Inc. on Friday announced a fresh spate of problems in its plan to sell a coveted 10-per-cent stake in the 407 toll road, including a bill for tens of millions of dollars and litigation.

The Montreal-based engineering and construction firm said it terminated its agreement from April to sell a 10.01-per-cent stake in the road to the Ontario Municipal Employees Retirement System for $3.25 billion. That will trigger payment of an $81.25-million break fee to OMERS — 2.5 per cent of the purchase price.

Instead, SNC-Lavalin said the Canada Pension Plan Investment Board, as a 40-per-cent owner of the 407, had exercised its right to match the offer. But a subsidiary of Spanish infrastructure company Ferrovial SA known as Cintra, which controls 43.2 per cent of the road, said it also has a right to match the offer and filed a lawsuit in Ontario Superior Court seeking recognition of this right — which SNC-Lavalin disputes.

That two funds would step up to match the purchase offer underscores the contention by some investors and analysts that SNC-Lavalin did not obtain a high premium for the road, which has provided a reliable and growing stream of cash.

SNC has said the latest dispute arose after CPPIB exercised its right of first refusal, but Cintra also said it intended to exercise its right of first refusal to acquire up to 51.95 per cent of the 10.01 per cent stake. However, SNC said that Cintra waived its “right of first refusal” in April 2002.

“Cintra claims that OMERS, one of Canada’s largest defined benefit pension plans, is a competitor of Cintra and does not fall within the waiver’s clear exception for financial investors such as pension funds,” SNC said.