SNC Lavalin hires advisors to explore strategic alternatives 

31 March 2019 - 12:00 am UTC

SNC Lavalin has hired advisors to explore opportunities including a potential sale or split up of the company, said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group during a 22 February earnings call.

When asked a plan B or C for the company’s future, SNC representatives said their priority was maintaining and looking after shareholder value. They are therefore looking at all future opportunities. SNC confirmed the hiring advisors that have started working on options. Because of the confidential nature of the process, no comment was given on the timeframe for the process.

In October 2018, SNC has launched the sale of its 6.76% stake in the Highway 407 toll road concession. During the call, managers confirmed that the sale process is still ongoing and that they would give further information when possible.

S&P recently downgraded SNC Lavalin’s credit rating to BBB-. One of the reasons behind this is SNC’s fraud and corruption charges that remain outstanding. If convicted from these charges, SNC could be banned from bidding on federal contracts for up to ten years. This would weaken the firm’s competitive position in Canada.

Company executives confirmed that at this moment SNC Lavalin has no restriction on bidding or winning on any Canadian work. They cannot be penalized until found guilty.

Regarding current legal proceeding, Neil stated they “had enough and are vigorously preparing to defend ourselves in court”.

The firm is not particularly looking to focus growth outside the country although they have plenty of opportunities to grow business outside Canada. They are aim to ”defend our innocent employees” added Neil.

SNC will not be diverging from its normal asset sale process. SNC’s Infrastructure Partners Fund’s aim is to recycle their cash. Once an investment is stabilized they push it to the fund.

“At any time good or bad we would try to recycle the cash as soon as possible” said Neil.

The Board of Directors reduced the quarterly dividend by CAD 0.187 per share to allow SNC-Lavalin to retain approximately CAD 131m of cash, which will be used to deleverage the balance sheet and give the company additional flexibility in the future.

The fourth quarter of 2018 reported IFRS net loss for shareholders of CAD1.6bn, or USD 9.11 per diluted share, compared with a net income of CAD 52.4m, or CAD 0.30 per diluted share, for the corresponding period in 2017.

SNC-Lavalin has divested the McGill University Health Centre project in Montreal to the SNC-Lavalin Infrastructure Partners. Publicly-listed infrastructure investor BBGI controls 80% of the fund, while SNC-Lavalin owns the remaining equity.

In 2017, SNC-Lavalin and BBGI announced that they had reached a partnership whereby mature assets would be transferred to a fund. Publicly-listed infrastructure investor BBGI has an 80% economic interest in the fund, while SNC-Lavalin owns the remaining economic interest while acting as both the General Partner and Manager of the fund.

As reported, SNC Lavalin is believed to be the preferred bidder for Ottawa’s Trillium Line public-private partnership (P3) and is part of the consortium building the CAD 2.1bn (USD 1.6bn) Confederation Line LRT, which set to be handed to the city by then end of March.

 

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