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Report on Business SNC-Lavalin vulnerable to takeover, Quebec Premier says

Quebec’s Premier says SNC-Lavalin Group Inc. is exposed to a possible takeover amid growing evidence his government is marshalling an effort to ensure the beleaguered engineering and construction firm remains based in the province.

Premier François Legault told an interviewer for a popular morning radio show in Montreal on Thursday that government officials have “indications” that the engineering company is the subject of interest from foreign buyers. He said he was happy that public pension plan manager Caisse de dépôt et placement du Québec had increased its stake in the company in recent weeks, adding that other Quebec-based players such as National Bank of Canada could also help mount a blocking minority of shares.

The Premier said Investment Quebec, the province’s investment arm, will have to get involved in the matter. Corruption charges involving a handful of former SNC-Lavalin executives have left the company in “a vulnerable position,” the Premier said.

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“The stock price has declined and they have no controlling shareholder,” Mr. Legault said. “It’s one of the 10 companies that we have to watch [as a government].”

Officials with SNC-Lavalin did not immediately respond to a request for comment on Thursday. Both the Caisse and National Bank declined to comment.

SNC-Lavalin stock fell the most in six years on Oct. 10 after the Public Prosecution Service of Canada decided against a negotiated settlement with the company that could have suspended and eventually stayed attempted bribery and fraud charges against it. Without such a deal, the company faces potentially years of uncertainty as its case pushes through trial and possible appeals.

SNC-Lavalin has a current market value of $8.3-billion. The stock has lost 9 per cent since Oct.10. Shares were flat on Thursday, closing down 22 cents at $47.18 on the Toronto Stock Exchange.

The prosecution service’s decision is undermining SNC-Lavalin chief executive Neil Bruce’s efforts to shut the door on a series of legacy issues that have soaked up resources and hampered the company’s competitive position against global rivals over the past six years. The biggest of those issues remains federal charges against the company laid in February, 2015, and scheduled for trial next year. Prosecutors allege the company paid millions of dollars' worth of bribes to public officials in Libya between 2001 and 2011 to secure government contracts.

One of the possible effects of the prosecutors' decision is “persistent undervaluation” of SNC-Lavalin shares, according to Chris Murray, analyst with AltaCorp Capital in Toronto. “[This] makes the company a takeover target, with all the political ramifications that would be associated."

The Caisse, SNC-Lavalin’s largest shareholder, has been increasing its position in the company. Since the spring, it has added nearly half-a-billion dollars' worth of shares, including $200-million over the past three weeks alone. The pension fund’s SNC stake now stands at 19.9 per cent, up from 14.9 per cent in March.

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Mr. Legault said he met recently with Caisse chief executive Michael Sabia and Pierre Fitzgibbon, Quebec’s Economy Minister, and discussed the SNC-Lavalin situation. Mr. Fitzgibbon told reporters in Quebec City on Wednesday that the government was concerned about SNC and that a “strategic discussion” needs to take place to ensure its survival as a Quebec company.

"The government has limited means and can't act everywhere," Mr. Fitzgibbon said. "However, there are head offices that are strategic and those require special attention."

The loss of corporate head offices is a highly sensitive issue in Quebec that continues to fuel public concern, particularly after the 2016 takeover of local hardware chain Rona Inc. by U.S.-based Lowe's. A general consensus has emerged among political and business leaders that local head offices need to be protected as much as possible – partly because of all the legal, regulatory and banking jobs tied to decision-making centres.

Mr. Legault said several possibilities could be pursued to shield SNC-Lavalin from an unwanted takeover. They include local investors teaming up to achieve a blocking position of more than 33 per cent and introducing multivoting shares at the company. (In general, a takeover bid only succeeds if a minimum of two-thirds of the shares are tendered to the bid.)

“There are many ways we can work here,” the Premier said. “It’s important to keep our head offices. I’ve often talked about that and we cannot do what previous governments have done and just let [companies] leave.”

SNC-Lavalin is Canada’s largest engineering and construction company. It employed about 8,700 people in the country as of January, 2018.

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