The head office of SNC Lavalin are seen Thursday, February 19, 2015 in Montreal. (Ryan Remiorz/The Canadian Press)

SNC-Lavalin selling 10% stake in Highway 407 in partial exit from Ontario project

OMERS will pay $3 billion to SNC on the closing of the deal and an additional $250 million over 10 years

SNC-Lavalin Group Inc. has signed a deal to sell the bulk of its stake in Ontario’s 407 toll highway operator for $3.25 billion, some of which will go toward a loan from Quebec’s pension fund.

The OMERS pension plan will buy a 10.01 per cent stake in 407 International Inc., reducing SNC-Lavalin’s interest to 6.76 per cent, according to an agreement announced Friday.

For more than six months, SNC-Lavalin has been mulling a partial sale to help pay down its loan from the Caisse, Quebec’s pension fund operator. The two-year-old loan stipulates that the company must keep its headquarters in Montreal until 2024, when the balance would be paid off.

A spokesman for the Caisse — by far the largest SNC-Lavalin shareholder at 20 per cent — said the sale does not alter that condition.

SNC-Lavalin had previously paid off $500 million of the $1.5-billion loan, and plans to use the proceeds from the 407 deal to pay down another $600 million upon closing, according to the company.

“This is a truly unique and exceptional asset that we believe has been undervalued by the market for many years,” SNC chief executive Neil Bruce said in a statement.

“Through this transaction, we are able to benefit from crystallizing some of this value, while retaining an interest in a successful Canadian infrastructure asset that we are proud to have helped build.”

READ MORE: New attorney general says he will resist pressure on SNC-Lavalin case

Analyst Yuri Lynk of Canaccord Genuity said in a research note that the sale has the effect of “immediately cleaning up” SNC’s balance sheet.

OMERS will pay $3 billion to SNC on the closing of the deal and an additional $250 million over 10 years, conditional on certain financial targets related to the performance of the toll highway.

The OMERS agreement with SNC is subject to certain rights of 407’s other shareholders, including rights-of-first refusal.

The other owners of the toll highway include a subsidiary of Ferrovial S.A., with a 43.23 per cent stake, and the Canada Pension Plan Investment Board with 40 per cent.

The deal is expected to close within two months.

Analysts say the transaction will yield net proceeds of $2.8 billion for SNC-Lavalin, assuming a tax rate of 13 per cent. The deal values the company’s total stake at about $27 per share, below the consensus of $28, according to analyst Benoit Poirier of Desjardins Securities.

He estimates the firm will put between $1.2 billion and $1.4 billion toward share buybacks over the long term.

“Bottom line, while the valuation for SNC’s stake in Highway 407 is below expectations, we believe the net proceeds should help SNC to deleverage and benefit from the stock’s current valuation,” Poirier said in a note to investors.

The company’s shares have hovered near 10-year lows of around $34 since Feb. 11, when it slashed its profit forecast for 2018 by more than 40 per cent and halted all bidding on future mining projects.

That reduced guidance came two weeks after it halved its forecast from November amid a diplomatic feud between Canada and Saudi Arabia — a key source of oil and gas revenue — and delays on its project with Codelco, Chile’s state-owned copper mining company, which has since cancelled the contract.

Friday’s deal comes as the SNC-Lavalin affair in Ottawa continues to simmer following accusations that top government officials pressured former attorney general Jody Wilson-Raybould to veto federal prosecutors’ move to prosecute the company on corruption charges instead of negotiating a remediation agreement.

Christopher Reynolds, The Canadian Press

Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Mustard Seed Coffee Company launches online ordering, free delivery

Program proceeds assist Greater Victoria residents in need

Current Taxi offers free rides for healthcare workers to or from hospitals

Rides must stay within 20 km of Victoria General or Royal Jubilee Hospital

Canadian seniors isolated with fewer friends, less access to internet

Findings appear in assessment of health and social challenges associated with COVID-19

Advocates call safe drug supply a victory but worry about logistics in pandemic

Pandemic contributes to scarce supply, advocates worried about potential impact on the streets

Greater Victoria survey shows third of respondents did not pay, or partially paid rent for April

Survey of 70 respondents says 40 per cent expect they will not be able to pay May rent

COLUMN: The other graph that shows B.C. can beat COVID-19

Is the curve being flattened? data on hospitalizations provides a crucial answer.

B.C. clears more acute hospital beds as COVID-19 case growth slows

Province holding about 40% of beds empty for peak still to come

75-year-old woman rescued from Cowichan Lake

Victim taken to hospital, but expected to recover

Not to become bored the game plan for COVID-19

Board game with an Island map developed by Island family just the remedy for filling time at home

As 500K+ apply for emergency benefit, Trudeau says aid coming for Canadians left behind

Canada Emergency Response Benefit provides $2,000 per month

UPDATE: UK PM Boris Johnson moved to intensive care after COVID-19 symptoms worse

He has been quarantined in his Downing St. residence since being diagnosed with COVID-19 on March 26

Travellers, travel agents ‘in agony’ over refund policies and customer service

Many Canadian carriers are offering customers flights rebookings or travel vouchers — but not refunds

Introverted and extroverted kids likely to react differently to COVID-19 restrictions

B.C. child psychologist says your parenting approach can’t be one-size fits all in social isolation

Most Read