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.

Just Posted

Truck crashed and dumped near Predator Ridge

Police are looking for two men in connection with a stolen vehicle

Salt and Brick chef to compete in Canada’s Great Kitchen Party

Chef James Holmes will compete in the fall competition

UPDATE: Police swarm residence near UBC Okanagan, arrest 3 men

Five RCMP cars were seen outside 755 Academy Way Wednesday evening.

UBC Okanagan makes addition to womens volleyball, basketball

Lucy Faba and Amaya Perry will join the Heat next season

VIDEO: Alberta man creates world’s biggest caricature

Dean Foster is trying to break the world record for a radio show contest

Man seriously injured after driving wrong way down B.C. highway

Police say the driver hit a transport truck, then another car after merging from the off-ramp onto highway

Candidates ready for Summerland Blossom Pageant

Royalty pageant will be held at Centre Stage Theatre on May 3 and 4

Shuswap society finds pets often suffer in domestic abuse cases

SPCA, SAFE Society working together to provide shelter for pets of women fleeing abuse

Should B.C. lower speed limits on side roads to 30 km/h?

Vancouver city councillor wants to decrease speed limits along neighbourhood side roads

Give Canada geese at Okanagan beaches a break

LETTER: Tour busses, full of photographers, local goose guides and an annual goose festival

Lawsuit eyed over union-only raise for B.C. community care workers

‘Low-wage redress’ leaves 17,000 employees out, employers say

Landlord of alleged Okanagan shooter recounts deadly day

Tony Friesen was working in one of the units of his Penticton building when he heard shots

Foreign national arrested in connection to thefts at YVR

A woman, 60, is being held in police custody as Richmond RCMP investigate

Most Read