Sale of Toronto Contractor Aecon to China-Owned Firm May Be Tricky
Canada’s Trudeau government is unlikely to scuttle a Chinese construction firm’s $1.19-billion takeover offer for Aecon Group, the country’s largest publicly traded construction company, according to one industry analyst.
The government is seeking new free-trade ties with China but has pledged to review any potential security issues stemming from a bid by China Communications Construction Co. (CCCC) for Aecon, which works in the domestic nuclear sector.
Aecon is part of a joint venture with SNC-Lavalin Group Inc. that last year won a $2.17-billion contract on the Darlington nuclear plant in Toronto. The deal also could become an issue in renegotiation of NAFTA.
Aecon says the all-cash deal will allow it new capital access to bid larger projects in Canada, often against foreign competitors. The firm saw second-quarter revenue fall to $540 million, compared to $660 million for the same period the year before, although earnings rose to $26 million from $22 million.
“We believe this is a very positive outcome for Aecon,” said Chairman Brian V. Tobin. The firm says it will keep its name, workforce, management team and Toronto headquarters.
John Gamble, CEO of Canada’s Association of Consulting Engineering Cos., says if the deep-pocketed China-backed CCCC were to buy Aecon, the firm could subsidize less profitable operations to gain market share, generating a major advantage over other private-sector firms.
“We are watching a player in our private market being acquired by a government- owned construction company in China,” he said. “It raises alarms when a company owned by a government becomes active [in that market].”
But Maxim Sytchev, construction industry analyst at the National Bank of Canada, said in an investor note that there is recent precedent for a likely OK by Canadian authorities who recently allowed China’s Hytera Communications Co. Ltd. to buy Vancouver telecom firm Norsat.
He says the Aecon deal is not likely to stir concern about market dominance. It is set to close in next year’s first quarter.
Sytchev does not foresee another deal competitor matching the Chinese firm’s offer, particularly the 42% premium over Aecon’s share price on Aug. 24, the day before it announced plans to explore a sale. According to the Toronto Star, SNC--Lavalin and Stantec both declined to make an acquisition offer.
"If Ottawa approves this deal, Aecon becomes part of a CCCC that is one of the world’s biggest construction enterprises, with revenues last year of $82.2 billion," said Toronto Star columnist David Olive in a Nov. 3 commentary. "Backed by the immense financial and diverse technological resources of CCCC, Aecon’s workforce – currently 1,866 employees – would be better able to bid on Canadian contracts while also gaining a passport to the vast Chinese market."