SNC-Lavalin seeks continued Caisse backing for future acquisitions

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SNC-Lavalin Group Inc. wants to tap the Caisse de dépôt et placement du Québec again to help finance future acquisitions as it tries to complete the purchase of British-based WS Atkins PLC, its biggest ever takeover.

The Montreal-based engineering firm confirmed that its partnership deal with the Caisse on the Atkins bid was not necessarily a one-time event and that it would seek to use the pension-fund manager's considerable financial firepower to accelerate its growth. The Caisse had $270-billion in assets under management at the end of 2016. It is SNC's largest shareholder.

"I'd love to do lots of stuff like this with [the Caisse]," SNC-Lavalin chief executive officer Neil Bruce told reporters following the company's annual shareholders meeting on Thursday. "It could certainly enhance and speed up our continued global evolution so we'll continue to talk to them."

The desire by SNC-Lavalin to bulk up further with Caisse backing underscores the close relationship between two major pillars of Quebec Inc. And it could give the engineering firm an advantage over other rivals in future industry consolidation as many competitors lack a similar financial catalyst of their own. A Caisse spokesman said the fund manager would be open to further collaboration.

SNC on April 20 unveiled the details of a $3.6-billion offer for British-based Atkins, a transformative acquisition that would vault the Canadian company into the top tier of engineering firms worldwide. A key element of the financing is a $1.9-billion commitment by the Caisse, including a $1.5-billion loan at 6.2-per-cent interest secured by the value and cash flows of SNC's interest in the Highway 407 toll road. The pension fund is also taking $400-million in SNC equity.

"SNC is uniquely positioned to undertake the transaction to give its already under-levered balance sheet and the financing support from one of the largest pension funds on the planet," National Bank analyst Maxim Sytchev said in an April 27 note. "We still believe that it is unlikely to see a superior bid emerging for WS Atkins."

A 6.8-per-cent stake in Atkins by activist investor Elliott Capital disclosed last month is not an obstacle to getting a deal done, Mr. Bruce said. The likelihood of a competing bid emerging for Atkins "is diminishing each day," he said. Mr. Bruce said he still expects the acquisition to close by the end of July.

With the Atkins deal, SNC is aiming to expand its presence in Europe and diversify its revenue stream with more infrastructure business. At home in Canada, meanwhile, legacy issues continue to linger in the background.

The RCMP laid rare corruption and fraud charges against SNC in 2015 related to its business in Libya. The company has asked Ottawa to consider letting federal prosecutors make so-called "deferred prosecution agreements" (DPAs) with companies accused of corruption. These are deals by which prosecutors can obtain multimillion-dollar fines from companies facing bribery allegations while sparing them a criminal conviction.

In the United States, which has a history of aggressively pursuing companies whose staff pay bribes, DPA agreements are standard and overseen by the U.S. Department of Justice. Britain also uses similar mechanisms but Canada has refused to adopt them.

SNC wants to resolve the matter without admitting guilt. It says the issue is still damaging its ability to bid on projects, particularly internationally.

"We have lost contracts" in the past year, particularly against two rivals who've benefited from a DPA system," Mr. Bruce said without giving any details. "It hurt the organization a lot."

Ian McLeod, a federal justice department spokesman, said the government is aware of the DPA issue but has not taken a position on it.