SNC Lavalin announces 407 deal with OMERS a no-go

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Blurred road and car, speed motion background © Ruslan Ivantsov /123RF Stock PhotosIn April, the Ontario Municipal Employees Retirement System’s infrastructure arm signed an agreement with SNC-Lavalin Group Inc. to buy a 10.01 per cent stake in the 407 International Inc., but now an existing shareholder is exercising its right to refuse the sale.

At the time of announcement, the OMERS indicated the sale was subject to certain shareholders’ rights, which included rights of first refusal.

The 407’s current shareholders include a subsidiary of Cintra Global, which is a subsidiary of Ferrovial S.A., and indirectly owned subsidiaries of the Canada Pension Plan Investment Board and SNC Lavalin.

After one of the CPPIB’s shareholders exercised its right of first refusal, SNC-Lavalin terminated the transaction with the OMERS subject to a later payment of a break fee. Following the CPPIB shareholder’s move, the Cintra shareholder also tried to exercise its right of first refusal on some of the subject shares.

“SNC-Lavalin disputes the ability of the Cintra shareholder to exercise a right of first refusal in the present circumstances,” said a press release from SNC Lavalin. “Pursuant to an agreement entered into between SNC-Lavalin and Cintra in April 2002, Cintra unequivocally waived its right of first refusal and other shareholder rights with respect to all future sales of shares in Highway 407 ETR by SNC-Lavalin to any purchaser that does not have competing interests ’in relation to construction, operations, asset management of, and investment in road or airport infrastructure projects other than solely as a financial investor such as a pension or superannuation fund.’”

Cintra said the OMERS is a competitor and doesn’t fall within the waiver’s clear exception for financial investors such as pension funds, according to the press release, which also noted this is headed to the Ontario Superior Court and the hearing date is scheduled for June 21, 2019.

“SNC-Lavalin remains confident in its position that Cintra’s claims and arguments are entirely without merit and that Cintra does not have the right to disrupt or participate in either the original sale transaction between SNC-Lavalin and OMERS, or in the sale transaction between SNC-Lavalin and CPPIB following the latter’s valid exercise of its right of first refusal,” the release said.

Following the court’s decision, the release said all parties have agreed that SNC Lavalin will sell its shares as soon as practical to either the CPPIB shareholder or the CPPIB and Cintra shareholders pro rata to their current share ownership on the terms and conditions of the transaction documents with the OMERS.

“Consequently, regardless of the court’s decision on the merits in first instance, SNC-Lavalin expects to sell, shortly following the issuance of the first instance court decision, all of the subject shares on substantially similar terms and conditions as the original sale to OMERS and it will in that case receive the same amount of gross proceeds at closing,” the release said.

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