Aecon shares plunge nearly 15 per cent after Ottawa blocks sale to Chinese firm

Ross Marowits, The Canadian Press</span>
Published Thursday, May 24, 2018 10:44AM EDT
Last Updated Thursday, May 24, 2018 11:41AM EDT

MONTREAL -- Aecon Group Inc. shares plummeted nearly 15 per cent Thursday morning to a nine-month low in the first trading after the federal government blocked the proposed $1.5-billion takeover of the construction firm by a Chinese state-owned company for reasons of national security.

The shares traded at $14.77 on the Toronto Stock Exchange in morning trading, a drop of $2.57 or 14.9 per cent.

It was the lowest level since late August, when the company announced it was launching a strategic review that included a potential sale.

The company announced in October that it had signed a deal to be acquired by CCCC International Holding Ltd., but the agreement has been controversial ever since.

Ottawa announced a full national security review of the transaction in February as experts urged the government to proceed cautiously when weighing any investment bids by Chinese state firms and to be as transparent as possible in reviewing the proposed deal.

Economic Development Minister Navdeep Bains confirmed the government's decision to block the deal after markets closed Wednesday.

"We listened to the advice of our national security agencies throughout the multi-step national security review process under the Investment Canada Act," he said in a news release..

"Our government is open to international investment that creates jobs and increases prosperity, but not at the expense of national security."

Some Canadian construction companies had voiced their opposition to the deal.

The association representing them said Thursday that the decision signalled the federal government's confidence in the Canadian construction industry.

"We are happy that the government recognizes the fact that government-owned or controlled entities have no place to compete against private and publicly-traded companies in the Canadian construction industry," stated Mary Van Buren, president of the Canadian Construction Association.

Financial analyst Frederic Bastien of investment firm Raymond James said the stock market was already pricing in a certain degree of deal uncertainty before the announcement, with the company's share price on Wednesday about 15 per cent below CCCC International Holding Ltd.'s offer price of $20.37 per share.

More importantly, he said it closed only five per cent above $16.60, the average share price during the four quarters that preceded any word of a sale process.

Bastien said the price could fall even lower as the stock moves from hedge and arbitrage funds back into the hands of fundamental investors.

"Aecon is better positioned than it was one year ago. Takeout or not, we argue the construction giant is a stronger company now than it was prior to the transaction announcement, and will eventually be valued as such," he wrote in a report.

Its backlog has reached a record high with contributions from large infrastructure contracts including the REM light rail project in Montreal and the Finch West light rail project in Toronto.

Aecon has a long history of participation in Canadian construction and engineering projects such as the CN Tower, Vancouver's SkyTrain, the St. Lawrence Seaway and the Halifax shipyard.

The company said it was disappointed with the government's decision and will continue to be a leading player in the Canadian construction and infrastructure market.

"While we have been prevented from pursuing the transaction, we are moving forward from a position of strength," president and CEO John Beck said in a statement.

Beck will remain in his position until a permanent replacement is found, while the sales process it had initiated will end.

Analyst Derek Spronck of RBC Capital Markets said he believes other buyers are unlikely in the near term and the company will move forward as a stand-alone company.

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