Fight for 407 Highway intensifies as SNC-Lavalin terminates deal with OMERS

Fight for 407 Highway intensifies as SNC-Lavalin terminates deal with OMERS

The owners of 407 International Inc. are off to the Ontario Supreme Court in June to settle who gets the ten percent share now owned by SNC-Lavalin.

In what seems a remarkable faux pas, SNC had agreed to sell its share to OMERS, the Ontario Municipal Employees Retirement Service.

SNC-Lavalin Group Inc.'s attempt to sell a stake in a Toronto toll road is bumping into legal headaches, though the embattled construction firm says the transaction is still on track to proceed.

The stake sale, due to close in early June, is now expected to be delayed for a few weeks.

SNC then challenged Cintra's move, saying that under an agreement signed in 2002, the Spanish firm "unequivocally waived" its matching rights in the event SNC sells shares in the 407 to a buyer that does not have competing interests "in relation to construction, operations, asset management of, and investment in, road or airport infrastructure projects other than exclusively as a financial investor such as a pension fund or superannuation fund". Once a decision is released, SNC will complete the sale and that Cintra and CPPIB have an agreement to adjust their ownership interest to comply with the court's decision. National Bank Financial reduced their price target on shares of Snc-Lavalin Group from C$52.00 to C$50.00 and set an "outperform" rating for the company in a research report on Monday, April 8th.

However, Cintra claims OMERS is a competitor and doesn't fall within the waiver's exception for financial investors.

The stake sale, announced in April, was part of the loss-making company's efforts to improve to improve its balance sheet. The company traded as low as C$26.02 and last traded at C$26.17, with a volume of 470318 shares changing hands.

Cintra holds 43.2% of highway 407, and indirectly owned subsidiaries of CPPIB own about 40%. They are the Canada Pension Plan Investment Board and a Spanish firm, Cintra Global S.E.

Snc-Lavalin Group Inc (TSE:SNC) hit a new 52-week low during mid-day trading on Wednesday. The company said it believes it has validly exercised its matching rights under the shareholders agreement and that contrary to the position taken by SNC and CPPIB, its shareholder rights have not been waived.

Neil Bruce, chief executive of SNC-Lavalin, declined to comment. Representatives for Cintra and CPPIB didn't immediately return a request for comment. The only question is whether it will sell the entire 10-per-cent stake to CPPIB or split the stake roughly half-and-half between CPPIB and Cintra.

Several equities research analysts recently commented on the stock.

Benoit Poirer, an analyst with Desjardins, noted that depending on the timing of the court ruling, the funds may not be received until after the second quarter.

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