SNC-Lavalin lines up Can$3.5 billion Atkins takeover 06 Apr 2017

Canadian engineering and construction firm SNC-Lavalin is in takeover talks to purchase UK design, engineering and project management firm WS Atkins in a cash deal worth Can$3.5 billion (£2.08 billion).

In a statement issued on Monday, 3 April, the Montreal-based company confirmed an earlier statement from WS Atkins - issued in response to a sudden surge in the UK company’s share price - that it had received an indicative offer from SNC-Lavalin at an offer price of 2,080p in cash for each Atkins share for the entire issued and to-be-issued share capital of Atkins. The statement said that “the offer would deliver value to Atkins shareholders at a level that the Board would be prepared to recommend, subject to reaching agreement on other terms and conditions of the offer.”

On Thursday afternoon April 5, Atkins shares had surged a further 20p to 1,990p, still 90p below the offer price by SNC-Lavalin, but Atkins warned: “There can be no certainty that a firm offer will be made, nor to the terms on which any firm offer might be made.”

SNC-Lavalin confirmed it was in discussions with WS Atkins and that the proposed “transaction would value the company at approximately $3.5 billion”.

SNC-Lavalin says it will finance the acquisition via a Can$1.9 billion facility from Canadian pension fund provider and institutional investor Caisse de dépôt et placement du Québec (CDPQ). This would take the form of $400 million in equity and a $1.5-billion loan secured against the SNC-Lavalin interest in the 108km-long Ontario Highway 407 toll road, in which it has a 17% interest that is said to be worth up to Can$5 billion. The balance would be raised using a mix of additional debt, equity and other financing.

SNC-Lavalin was founded in 1911 and has offices across 50 countries. Its construction division has completed a number of tunnelling projects in Canada and North America and holds a share in the Can$9.1 billion 30-year design-construct-finance-maintain contract to build all 25 stations, trackwork and signalling for the Crosstown LRT project in Toronto, the central section of which runs underground. It is also involved in the construction of Ottawa’s Confederation Line.

The Canadian company recently emerged from a fraud and corruption scandal that saw it served in 2013 with a 10-year ban on bidding World Bank contracts, following what that organisation called the company’s misconduct in relation to a bridge project in Bangladesh. Last year (2016) the bribery case against two former company executives collapsed after the presiding judge ruled that he had serious concerns about wiretap evidence that the prosecution would base its evidence on.

Takeover of a major competitor that is perceived to have a stronger foothold in Europe for SNC-Lavalin is seen as an attractive option for a company that is historically strong in the Americas. Earlier in the year, there were reports in the UK construction press that US consultancy CH2M was exploring a £3 billion merger with Atkins. CH2M expanded into the UK with acquisition of British consultant Halcrow in 2011. Last year Canadian engineering design and engineering company Stantec, completed a US$793 million takeover of USA-based rival MWH Global.