SNC-Lavalin could restructure in wake of fraud, corruption charges

Share

Canadian engineering firm SNC-Lavalin Group Inc. has raised the possibility it could reorganize its business as a way to deal with the fallout of criminal corruption and fraud charges.

SNC senior management has been holding meetings with specific investors in recent days, during which they've been asked for their thoughts on charges filed against the company last month. Restructuring is one avenue executives mentioned as a possibility if other efforts to find an acceptable resolution fail, according to sources.

Montreal-based SNC-Lavalin maintains that any wrongdoing was the act of people it no longer employs and that it should never have been formally accused. The firm, which currently employs about 42,000 people, faces a 10-year ban from Canadian government contracts if it is found guilty or pleads guilty to the charges.

Chief executive officer Robert Card's first choice to resolve the matter is some form of "deferred prosecution" settlement, a system used in the United States to deal with companies accused of corruption. Mr. Card, an American who served as deputy undersecretary of the U.S. Department of Energy for three years ending in 2004, said during SNC's fourth-quarter earnings call last week that he remains confident he can negotiate a U.S.-style deal with Canadian authorities. "That's my day-and-night focus," he said.

However, the company could consider other scenarios, such as a restructuring, according to analysts at BMO Capital Markets, who hosted SNC's senior management for a meeting Friday in Montreal.

It's not immediately clear how such a restructuring would occur, but it could involve shifting operating assets into corporate entities that have not been charged – or selling itself to another company in a friendly deal.

"SNC is ideally looking to something along the lines of a deferred prosecution agreement and a global settlement," BMO analyst Bert Powell said in a March 9 note to clients. "Failing to succeed on that front, SNC could be looking to restructure, which would be expensive and complicated."

An SNC spokesman declined to comment on the question of restructuring specifically, saying the company's main focus remains reaching an agreement with the federal government and the Crown.

SNC has not yet seen the prosecutor's evidence and expects to gain access to that information next month, after which it will be in a better position to assess the merits of the case, Mr. Powell said in his note.

"I'm not at all surprised that [SNC-Lavalin] is looking to other creative ways to achieve a resolution that's going to be mutually acceptable and appropriate for all of the interests that are at play here," said Kristine Robidoux, a Calgary lawyer with Gowlings who defended the first two Canadian companies prosecuted under Canada's Corruption of Foreign Public Officials Act, namely Niko Resources and Griffiths Energy.

"At the end of the day, the decision that is going to have to be made by Canadian enforcement authorities is whether the ends of justice can be met without seeing this important Canadian company be disproportionately harmed."

Edmonton design consultancy Stantec Inc.'s purchase last year of troubled Montreal engineering firm Dessau provides one possible model for an SNC restructuring.

Under that takeover agreement, Stantec bought Dessau's Canada-based employees, building leases and contract book. Dessau carried on as a private company with international assets, and liability for Dessau's legacy issues remained with its legacy shareholders. That hiving off was key because it freed Stantec from millions of dollars worth of potential penalties to the Quebec government as a result of the admission by a former Dessau executive that the company participated in collusion and illegal political party financing.

The RCMP last month laid rare corporate fraud and corruption charges against SNC-Lavalin Group, its unit SNC-Lavalin Construction Inc., as well as subsidiary SNC-Lavalin International Inc. as part of the force's continuing investigation into the company's business dealings in Libya. The charges came after negotiations between SNC and prosecutors failed to reach a settlement.

Canada has so far refused to adopt so-called "deferred prosecution" or "non-prosecution" agreements common in the United States. Under such deals, prosecutors can obtain fines from companies facing bribery allegations while sparing them a trial or guilty plea that would trigger further reputational damage.