Its planned marriage to a Chinese suitor blocked, construction company Aecon Group Inc. pledged on Thursday to remain independent and capitalize on a string of recently awarded contracts.
The federal government ended a $1.5-billion takeover of Aecon by state-controlled China Communications Construction Co. Ltd. (CCCC) on Wednesday, citing national-security concerns. CCCC won a bidding war for Aecon last October after the Toronto-based company put itself up for sale. Aecon formally ended the auction late on Wednesday and chief executive officer John Beck said the company emerged from the process in a position of strength.
“Over the past several months, Aecon has secured numerous large-scale projects, has a record backlog and a significant pipeline of opportunities,” Mr. Beck said. Analysts concurred with the CEO’s upbeat view. CIBC World Markets Inc.’s Jacob Bout said in a report: “The outlook for Aecon has improved substantially since it announced that it was up for sale in August, 2017.”
Aecon’s share price dropped on Thursday after Ottawa terminated the CCCC takeover, falling more than 15 per cent to close at $14.67 in Toronto. The CCCC offer was for $20.37 a share and CIBC’s Mr. Bout predicted Aecon stock will hit $20 in the next 12 to 18 months.
Aecon currently has a record backlog of work, with $4.6-billion in projects on its books. In recent months, the company won roles on transit projects in Montreal and Toronto. It is currently bidding to build light-rail networks in Hamilton and Ottawa that, together, are worth more than $3-billion. Aecon is also a leading contender on coming contracts to refurbish two Ontario nuclear power plants.
Aecon also pulled out of bidding on the Gordie Howe International Bridge between Windsor and Detroit while working on the CCCC takeover, citing capacity issues. Security experts had raised concerns over a state-controlled Chinese company working on the link. Analysts said Aecon may now opt to re-enter the competition for the $4.8-billion project.
The federal Liberals turned down CCCC’s bid for Aecon after swiftly approving last year’s takeover of satellite technology company Norsat International Inc. by Chinese rival Hytera Communications Co. Ltd.
Canadian and U.S. intelligence services objected to the Norsat takeover, according to sources close to Norsat, CCCC and Aecon. The sources said Prime Minister Justin Trudeau and his cabinet subsequently revised their view on state-owned Chinese companies and heightened the scrutiny applied to the bid for Aecon, which works on power plants, military bases and telecom networks.
Several Canadian construction firms, including PCL Constructors Inc., Ledcor Group and P.W. Graham & Sons Construction, sent representatives to Ottawa to lobby against the CCCC takeover, in part because they claimed a state-controlled company would undercut rivals on prices in order to boost its market share.
While the CCCC takeover failed to get government approval, and Aecon now says it plans to remain independent, takeover experts said another foreign or domestic construction company could launch a bid. Lawyers and bankers also said that Chinese companies are still potential buyers of Canadian businesses.
“No indication has been given that this decision signals a change in Canada’s overall approach to foreign investment, including foreign investment from China,” law firm Osler Hoskin & Harcourt LLP said in a report. “To date, the federal government has exercised its national-security review power judiciously.”
When Aecon put itself up for sale last year, its bankers at BMO Capital Markets Corp. reached out to 16 potential buyers. Along with CCCC, three companies made formal offers, according to regulatory filings Aecon made last year.
On Wednesday, the company said “while Aecon’s board considers strategic options … from time to time, Aecon is no longer actively pursuing a sale process.” That language leaves the door open to another offer. CIBC’s Mr. Bout said: “There were other bidders as part of the Aecon sale, but an immediate bid appears unlikely.”
A new boss is expected at Aecon. Mr. Beck is 76 years old and previously announced plans to retire, then put his departure on hold while the takeover was pending. Aecon’s board said it restarted the search for a new CEO after the CCCC offer was blocked and Mr. Beck is expected to continue in the role until his successor is selected.