SNC-Lavalin sells 10% Highway 407 stake to OMERS, re-negotiates CDPQ loan

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By Ted Liu

SNC-Lavalin (TSX: SNC) has agreed to sell 10.01% of the shares of 407 International Inc. to OMERS for $3 billion payable at the closing date and up to $250 million over 10 years conditional to certain financial thresholds.

407 International Inc. is owned by Cintra Global Holding Limited, a wholly owned subsidiary of Ferrovial S.A. (43.23%), by indirectly owned subsidiaries of Canada Pension Plan Investment Board (40%), and by SNC-Lavalin (16.77%).

The sale is subject to certain shareholders’ rights, including rights-of-first refusal. SNC-Lavalin will retain a 6.76% ownership of Highway 407 ETR.

SNC-Lavalin’s 407 ETR stake is subject to a loan agreement with Caisse de dépôt et placement du Québec (CDPQ).

To fund its $3.6 billion acquisition of WS Atkins plc in July 2017, SNC-Lavalin entered into a $1.5 billion loan agreement with CDPQ, through SNC-Lavalin Highway Holdings Inc., the entity that holds SNC-Lavalin’s interest in Highway 407ETR.

CDPQ loan is secured by all of SNC-Lavalin Highway Holdings assets, excluding the 407 International Inc. shares held by the SNC-Lavalin Highway Holdings. SNV-Lavalin pledged 29.9% of the outstanding common shares of SNC-Lavalin Highway Holdings to CDPQ as part of the loan.

SNC-Lavalin and CDPQ have re-negotiated the terms of the $980 million outstanding CDPQ loan agreement. This agreement meets the objectives of both parties, said SNC-Lavalin. $600 million of the sale proceeds will be used for the payment under the CDPQ loan agreement.

Mike Harris’ Ontario PC government sold 407 in 1999 for a meager $3.1 billion, boasting a “tidy profit” of $1.6 billion.

photo credit: Ferrovial

News Release

SNC-Lavalin reaches an agreement to sell 10.01% stake of Highway 407 ETR to OMERS for up to $3.25 billion

MONTREAL: April 5, 2019 – SNC-Lavalin (TSX:SNC) is pleased to announce that it has reached an agreement to sell 10.01% of the shares of 407 International Inc. (“Highway 407 ETR”), the world’s first all-electronic, barrier-free toll highway located in the Greater Toronto Area (“GTA”), to OMERS. As of today, Cintra Global S.E., a wholly owned subsidiary of Ferrovial S.A., owned 43.23% in Highway 407 ETR, while indirectly owned subsidiaries of Canada Pension Plan Investment Board owned 40% and SNC-Lavalin owned 16.77%. Based on the terms of the agreement, gross proceeds to SNC-Lavalin from the sale could reach $3.25 billion in aggregate, $3.0 billion payable at the closing date and $250 million over a period of 10 years, conditional to certain financial thresholds related to the ongoing performance of Highway 407 ETR. The deal is expected to be completed within approximately two months.

The sale is subject to certain shareholders’ rights, including rights-of-first refusal. SNC-Lavalin will retain a 6.76% ownership of Highway 407 ETR. This transaction is subject to customary closing conditions.

“This is a truly unique and exceptional asset that we believe has been undervalued by the market for many years. 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,” said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. “Concurrently to this, the Company and CDPQ have re-negotiated the terms of the $1 billion CDPQ loan agreement entered into 2017, which is supported by Highway 407 ETR shares. This agreement meets the objectives of both parties.”

The detailed terms and conditions of the revised CDPQ loan agreement can be found on SEDAR.

Net proceeds from this transaction will be used (i) for the payment of approximately $600 million under the CDPQ loan agreement, which has been recently amended; and (ii) for the execution of the Company’s deleveraging plans. As for the remainder of the proceeds, the Company will continuously evaluate which capital allocation strategy, including buy-backs, would be the most accretive to shareholder value.

“We believe that the value realized through this transaction demonstrate once again the inherent value creation by our Capital Investments,” said Stephanie Vaillancourt, Executive Vice-President, Capital and Treasurer. “Our investment in Highway 407 ETR has provided excellent returns over the years. It is the first all-electronic open access tolled highway in the world stretching 108 km east-to-west in the heart of the GTA, Canada’s largest urban economic and population center. Our Capital business is ideally positioned to invest in and realize such projects, with the extensive experience and collaboration of our engineering and project colleagues.”

About Highway 407 ETR
Highway 407 ETR is the best way to travel across the top of the Greater Toronto Area. Drivers make over 415,000 trips each workday and continue to report that using the toll road saves them significant time, reduces their fuel consumption and vehicle maintenance costs and staying out of gridlock and heavy traffic elsewhere means lower harmful CO2 emissions. Use of the toll road has increased steadily since opening in 1999 and is now well known as the route of choice for business to move goods efficiently and for people wanting to save time for the things that matter most.

Founded in 1962, OMERS is one of Canada’s largest defined benefit pension plans, with $97 billion in net assets as at December 31, 2018. A jointly-sponsored pension plan, with 1,000 participating employers, OMERS invests and administers pensions on behalf of almost half a million active and retired members. OMERS members include union and non-union employees of municipalities, school boards, transit systems, electrical utilities, emergency services and children’s aid societies across Ontario. Contributions are funded equally by members and employers. OMERS has employees in Toronto, London, New York, Amsterdam, Luxembourg, Singapore, Sydney and other major cities across North America and Europe – originating and managing a diversified portfolio of high-quality investments in public markets, private equity, infrastructure and real estate.

About SNC-Lavalin
Founded in 1911, SNC-Lavalin is a global fully integrated professional services and project management company and a major player in the ownership of infrastructure. From offices around the world, SNC-Lavalin’s employees think beyond engineering. Our teams provide comprehensive end-to-end project solutions – including capital investment, consulting, design, engineering, construction management, sustaining capital and operations and maintenance – to clients across the EDPM (engineering, design and project management), Infrastructure, Nuclear, Clean Power, and Resources businesses.


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