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August 1, 2021

Exclusive: West Face pushes SNC-Lavalin to sell 407 highway stake – sources

By John Tilak and Allison Lampert

TORONTO/MONTREAL (Reuters) – Canadian hedge fund West Face Capital is pushing SNC-Lavalin Group Inc to sell its stake in Ontario’s 407 toll highway, a move that could fetch the engineering and construction company more than C$5 billion ($3.83 billion), according to two sources familiar with the process.

West Face is an SNC shareholder but has not disclosed the size of its holding. SNC owns about 17 percent of the 407, which many investors see as a non-core asset.

Stretching from the Ontario cities of Burlington to Pickering, the 407 is a 108-km (67-mile) electronic toll highway that runs north of Toronto. It is in the midst of expansion projects aimed at improving its growth profile and value.

SNC could begin the process of selling its 407 stake as early as later this year, said the sources, who declined to be identified because the matter is not yet public.

SNC-Lavalin spokesman Louis-Antoine Paquin said on Tuesday that the company “continually reviews all opportunities that would be accretive to the company and improve value for shareholders.” West Face declined comment.

The push to sell the Ontario toll road comes after West Face in 2013 called for SNC’s sale of AltaLink, Alberta’s largest regulated electricity transmission company. SNC sold its stake in AltaLink to Berkshire Hathaway Inc’s energy unit for about C$3.1 billion in 2014.

Other investors in the 407 are Cintra Infraestructuras Internacional S.L., a unit of Ferrovial S. A., and Canada Pension Plan Investment Board.

The sale of the stake in an infrastructure asset with a steady cash flow would likely attract strong interest from pension and sovereign wealth funds and other infrastructure investors.

Montreal-based SNC has said it the past it could consider selling the stake. It initially resisted the move but has become more open to the sale stake in recent months, especially with appointment of a new chief executive, the sources said.

One of the sources said the company indicated that it will consider selling the stake once its engineering business has stabilized, said. SNC said earlier this year that it expects to record an earnings increase from those core businesses in 2016.

West Face, one of Canada’s biggest hedge funds, would like the company to use the money from a sale for a share buyback and to reinvest into the business, the sources said.

West Face’s discussions with SNC are friendly and have been going on for about a year, the sources said. West Face has played an activist role in the past and successfully brought about a shake-up at Maple Leaf Foods in 2010.


West Face is pushing for the sale because it believes SNC’s share price does not reflect the value of the 407 and its other businesses, the sources said.

SNC’s share price is up about 26 percent year to date, and it has a market capitalization of about C$7.8 billion.

The stock, which was weaker earlier in the session, closed up 0.8 percent on Tuesday at C$52.16 in Toronto.

Other top shareholders in SNC include Canadian pension funds Caisse de depot et placement du Quebec and Canada Pension Plan Investment Board, as well as fund managers Fidelity and Mackenzie Financial.

Caisse, the biggest shareholder in SNC and a major infrastructure investor, would prefer that SNC spins off the 407 stake to existing SNC shareholders, thereby allowing it to continue to own a slice of the asset, one of the sources said. Caisse declined comment.

It’s also possible that an agreement could be reached to sell part of the stake on the open market and spin off the rest to SNC shareholders, satisfying all parties, one of the sources said.

($1 = 1.3049 Canadian dollars)

(With additional reporting by Matt Scuffham in Toronto; Editing by Cynthia Osterman)

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