SNC-Lavalin Group Inc. is holding talks to buy WS Atkins Plc of the U.K. for 2.08 billion pounds ($2.6 billion) as Canada’s biggest engineering and construction company looks to expand its global reach with a record acquisition.
The Montreal-based builder made a tentative offer of 2,080 pence a share, “a level that the board would be prepared to recommend,” Atkins said in a statement after a surge in its stock price. SNC confirmed the approach in a separate filing.
A deal would bolster SNC’s global sales as the company emerges from a self-imposed moratorium on acquisitions, which it adopted in 2015 as Chief Executive Officer Neil Bruce focused on bringing greater consistency to financial results. Adding Atkins would strengthen the company’s foothold in Europe and bolster projects outside the energy industry at a time when the price of oil remains stuck around $50 a barrel.
The purchase “would significantly diversify SNC’s service portfolio away from oil and gas, a positive in our view,” Benoit Poirier, an analyst at Desjardins Capital Markets, said in a note to clients.
Atkins surged 27 percent to 1,950 pence at the close in London after gaining as much as 30 percent, the biggest jump in 14 years. SNC climbed 0.2 percent to C$52.30 at 3:28 p.m. in Toronto after a trading halt.
Deal Funding
If the deal proceeds, Caisse de Depot et Placement du Quebec, Canada’s second-biggest pension fund manager, will contribute as much as C$1.9 billion ($1.4 billion), SNC said. The amount includes C$400 million in equity and a C$1.5 billion non-recourse loan secured by the value and cash flows of SNC’s stake in Ontario’s Highway 407. The Caisse is already SNC’s biggest shareholder.
The remainder of the financing would be raised through a mix of debt, equity and “other financing means,” SNC said. The company intends to maintain its investment-grade rating following the transaction, adding that the total equity portion of the financing — including any equity from the Caisse — will probably represent less than one-third of the deal value.
The support of the Caisse, which is widely seen as “solid and well-established,” will “reinforce investors’ confidence in the financing of a potential transaction,” Poirier said. “As a result, we are now slightly more confident with regard to the likelihood of a transaction versus our initial take.”
SNC Chief Financial Officer Sylvain Girard said in January that the company was looking for acquisitions of as much as C$4 billion. SNC’s biggest acquisition to date was its 2014 purchase of oil and gas services provider Kentz Corp. for about C$2 billion.
The first quarter of this year was the busiest for U.K. mergers by volume since the same period in 2012. British companies were involved in deals totaling more than $93 billion, which included several U.K. businesses buying assets outside the country. That’s up from $37.1 billion in the same period last year. The pound fell 13 percent against the U.S. dollar in the 12 months ended March 31, making British targets cheaper for foreign suitors.
‘Other Terms’
There’s no guarantee a firm offer will be made, SNC and Atkins said. Royal Bank of Canada is advising SNC while Atkins is getting advice from Moelis & Co. and JPMorgan Chase & Co.
“The board of Atkins has indicated to SNC-Lavalin that the possible offer would deliver value to Atkins shareholders at a level that the board would be prepared to recommend,” Atkins said in the statement. Any deal would be “subject to reaching agreement on the other terms and conditions of the offer,” it said.
Atkins provides engineering, design and project management services for big construction projects, notably in transportation infrastructure. SNC’s projects include highways, power plants, train lines and the Champlain bridge from Montreal to the south shore of the St. Lawrence River.
Oil and gas accounted for about 44 percent of SNC’s sales last year. Europe generated for only 5.3 percent while Atkins got almost half its revenue there.
Source: Bloomberg.com