Stephen Jarislowsky, a former director of SNC-Lavalin Group Inc. and a long-time advocate of corporate governance in Canada, is calling on the Quebec company to get the blessing of its shareholders before selling most of its stake in the Highway 407 toll road outside Toronto.
SNC said earlier this month it will sell 10 per cent of the 407 to the Ontario Municipal Employees Retirement System (OMERS) for $3-billion, plus a potential $250-million extra payable when certain milestones are met. SNC owns 16.8 per cent of the 407, with Ferrovial SA and the Canada Pension Plan Investment Board holding the rest.
Mr. Jarislowsky’s comments come in a “personal note” in the latest e-mail newsletter from the Canadian Foundation for Advancement of Investor Rights, an investor-advocacy group that he helped found and to which he contributed $2-million in seed money. Mr. Jarislowsky continues to sit on the board as the group struggles for additional funding.
"Selling Capital assets is very much in the ordinary course of our business,” SNC spokesman Nicolas Ryan said in a statement Tuesday morning. “The potential sale of a portion of [the 407] has been publicly disclosed every time it was considered,” SNC said, including the first disclosure on Aug. 2 of last year.
Mr. Jarislowsky acknowledges SNC is allowed to make the sale without a vote. The Toronto Stock Exchange requires a shareholder vote when a listed company plans to dispose of businesses that represent 50 per cent or more of its assets, as measured on the balance sheet, or various other measures including revenue or management time. Estimated market value, however, is not one of the criteria. And Mr. Jarislowsky points to the 407′s outsized role in SNC’s current market value, estimating it represents 80 per cent of SNC’s current $5.8-billion market capitalization.
He says shareholders are giving little value to the company’s engineering business, which would remain after the 407 sale. He said “it will be a Herculean task to rebuild SNC-Lavalin Engineering” and “the shareholders may end up with next to no value” if the sale proceeds.
“The Board’s decision regarding the 407 in my opinion lacks ethics and goes counter to fiduciary exercise of responsibility,” he wrote. “At the very least in this case, a free vote by the shareholders should be mandatory before the 10 per cent sale of the 407 is permitted even if current law permits it.”
SNC’s 407 stake “is one of the finest investments that I know, as it is quasi government-guaranteed, plus enjoys the full growth of the traffic around Toronto ... the asset has the quality of a government bond, plus profits from the growth of the transportation revenues as the traffic on the road increases, or as the road is widened or expanded.” Mr. Jarislowsky estimates the value of the 407 investment can double in 10 years.
Mr. Jarislowsky is also exercised about the failure to provide a deferred prosecution agreement to SNC. The company faces charges of bribery and fraud related to business dealings in Libya from 2001 to 2011. Federal prosecutors have so far declined to invite the company to negotiate a settlement on those charges to avoid a lengthy trial.
As Mr. Jarislowsky describes the aftermath: “In recent months, the company has claimed political centre stage in Ottawa due to the government’s ineptness ... SNC-Lavalin was ordered to face criminal charges by a minister with good intentions, yet little experience. To date, this error has not been reversed, a situation I have difficulty understanding.”
“SNC-Lavalin appreciates Mr. Jarislowsky’s remarks on the appropriateness of a remediation agreement in the circumstances of our company,” Mr. Ryan said in the statement.