SNC-Lavalin has reached an agreement to sell 10.01% of the shares of 407 International Inc., the world's first all-electronic, barrier-free toll highway located in the Greater Toronto Area, to OMERS.
Cintra Global S.E., a wholly owned subsidiary of Ferrovial S.A., owned 43.23% in Highway 407 ETR, while indirectly owned subsidiaries of Canada Pension Plan Investment Board owned 40% and SNC-Lavalin owned 16.77%. Based on the terms of the agreement, gross proceeds to SNC-Lavalin from the sale could reach $3.25 billion in aggregate, $3.0 billion payable at the closing date and $250 million over a period of 10 years, conditional to certain financial thresholds related to the ongoing performance of Highway 407 ETR.
The deal is expected to be completed within approximately two months. The sale is subject to certain shareholders' rights, including rights-of-first refusal. SNC-Lavalin will retain a 6.76% ownership of Highway 407 ETR. This transaction is subject to customary closing conditions.
"This is a truly unique and exceptional asset that we believe has been undervalued by the market for many years. Through this transaction, we are able to benefit from crystallizing some of this value, while retaining an interest in a successful Canadian infrastructure asset that we are proud to have helped build," said Neil Bruce, President and Chief Executive Officer, SNC-Lavalin Group Inc. "Concurrently to this, the Company and CDPQ have re-negotiated the terms of the $1 billion CDPQ loan agreement entered into 2017, which is supported by Highway 407 ETR shares. This agreement meets the objectives of both parties."
The detailed terms and conditions of the revised CDPQ loan agreement can be found on SEDAR.
Net proceeds from this transaction will be used (i) for the payment of approximately $600 million under the CDPQ loan agreement, which has been recently amended; and (ii) for the execution of the Company's deleveraging plans. As for the remainder of the proceeds, the Company will continuously evaluate which capital allocation strategy, including buy-backs, would be the most accretive to shareholder value.
"We believe that the value realized through this transaction demonstrate once again the inherent value creation by our Capital Investments," said Stephanie Vaillancourt, Executive Vice-President, Capital and Treasurer. "Our investment in Highway 407 ETR has provided excellent returns over the years. It is the first all-electronic open access tolled highway in the world stretching 108 km east-to-west in the heart of the GTA, Canada's largest urban economic and population center. Our Capital business is ideally positioned to invest in and realize such projects, with the extensive experience and collaboration of our engineering and project colleagues."
