China acquires Aecon of Canada 30 Nov 2017

TunnelTalk reporting

China has made another strategic move in the international construction market with agreement that CCCI, the international division of China Communications Construction Company will acquire infrastructure group Aecon of Canada for an agreed Can$1.51 billion (US$1.2 billion in late Nov exchange rates).

If approved by regulators, Aecon will be the second major international civil construction company acquisition by CCCI after securing ownership of John Holland from Leighton Group in Australia in 2015.

The agreed deal, which the Aecon Board accepted unanimously and enthusiastically, values the Toronto-based company at 23% above its late-October 2017 market capitalisation with CCCI acquiring all of the issued and outstanding common shares of Aecon for $20.37/share in cash, representing an enterprise value of $1.51 billion.

In a public statement, John M Beck, founder, President and CEO of Aecon, said the deal would create “significant and immediate value for Aecon shareholders”, and will provide “enhanced capabilities and financial resources” to strengthen the company’s position in Canada and abroad.

CCCI President Lu Jianzhong, who was instrumental in securing John Holland and is now its Chairman, said the Aecon deal “is an excellent fit”. Aecon [is] a leading construction company in Canada and a pioneer in public–private partnerships (PPP) and concession operations. It will now gain access to significant capital, complementary infrastructure expertise and an international network to support its growth ambitions.”

Both companies are engaged in the heavy civil engineering industry and both have tunnelling and underground excavation contracts in their portfolios.

Lu Jianzhong, President of CCCI
Lu Jianzhong, President of CCCI
John M Beck, founder, President and CEO of Aecon
John M Beck, founder, President and CEO of Aecon

Aecon is currently working on sections of the Toronto Subway as well as hydroelectric schemes in Canada.

Beijing-based CCCC, parent company of wholly owned subsidiary CCCI, is one of the largest engineering and construction companies in the world with revenues estimated at $62 billion and a stated 118,000 employees (including 48,000 foreign employees) in more than 140 countries and regions and is involved in major tunnelling infrastructure projects in China including the mega bridge-immersed tube Hong-Kong-Zhuhai-Macao sea crossing.

The company is also active in TBM tunneling across China and has its own TBM manufacturing facility trading under the TBM brand name Tianhe. Details of the TBMs were on show at the bauma CHINA trade fair in Shanghai in November 2016.

China is also owner of another Canadian company icon - the Lovat TBM design and manufacturing company, that is owned now, and since 2014, as Lovsuns by Liaoning Censcience Industry Co Ltd (LNSS) and continues to operate from the original Lovat headquarters in Toronto.

CCCC Tianhe brand TBMs on display at bauma CHINA
CCCC Tianhe brand TBMs on display at bauma CHINA

As well as the two civil construction companies in Canada and Australia, CCCI acquired Friede & Goldman in 2010, a leader in offshore architecture and engineering based in Houston, Texas, USA.

The acquisition is yet to be approved by a two-thirds majority of votes cast at a special meeting of Aecon shareholders as well as by authorities in China, and by Canadian Government regulators as the takeover is more than the Can$1 billion threshold of foreign company ownership of Canadian businesses imposed by the Investment Canada Act. In committing to the deal, CCCI said it would ensure that the transaction delivers benefits to Canada, that the company would continue to be headquartered in Canada, that its employees and brand identity would be retained, and that the company’s corporate social responsibility and its support for Canadian suppliers would continue.

Regulatory clearance for the deal to be concluded could take up to the end of the first quarter of 2018. If Aecon were to find another buyer in the period, it would have to pay a Can$50 million termination fee. If CCCI were to back out, it would be subject to a Can$75 million termination fee.

Aecon made it known in August it was up for sale. The company had been without a permanent CEO since November last year, when Terrance McKibbon left the company and founder John Beck replaced him on an interim basis. Announcement of the deal came as the company reported a third-quarter profit of $24.6 million, down from a profit of $27.4 million a year ago and as revenue fell to $759.7 million compared with $838.1 million in the same quarter last year.

CCCC is publicly traded on the Hong Kong and Shanghai stock exchanges and Aecon is a publicly traded company of the Canadian and New York stock exchange.

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