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Insolvent Davie’s Assets Surface in Bid to Land Canada’s Largest Ship Deal

Three shipyards have submitted bids for a C$35 billion ($37 billion) contract to build ships for the Canadian Navy and Coast Guard, including one that plans to use the assets of insolvent Davie Yards Inc.

Upper Lakes Group Inc., a Toronto-based shipyard operator, is joining with Seoul-based Daewoo Shipbuilding and Marine Engineering Co. Ltd. and Montreal-based engineering firm SNC- Lavalin Group Inc. to bid on the contract. The companies filed their bid after Upper Lakes received court approval to acquire Davie’s assets, a Levis, Quebec-based shipyard that has been in bankruptcy protection since last year.

A Quebec Superior Court judge today approved the asset sale to a subsidiary of Upper Lakes, which has formed a joint venture with SNC and Daewoo to bid on the project. The court’s approval came just hours before the bidding deadline at 2 p.m. Ottawa time.

“We’re confident that we are eligible to bid, and we are confident that our bid is compliant in all respects, and competitive,” said John Dewar, Upper Lakes’s vice-president of strategic services. He said the new company, called Davie Canada, will bid for the non-combat component of the project, which will supply support ships to the navy and a polar icebreaker and research vessels to the Canadian Coast Guard.

The other two bidders are Vancouver-based Seaspan Marine Corp. and Irving Shipbuilding Inc. of Halifax, Nova Scotia.

No Insolvent Bidders

Seaspan has called on the federal government to enforce a rule, outlined in a tender document issued in February, that bars companies that are insolvent or in court-supervised bankruptcy protection from submitting bids.

“That requirement has been known for a long time,” said Jonathan Whitworth, chief executive officer of Seaspan Marine Corp., a Vancouver-based company that has already submitted its bid. “Whether or not you believe the rules are fair, the rules have been very clearly articulated.”

The government’s tender documents say two shipyards will be selected to complete the contract, Canada’s largest procurement project. It will supply about 30 vessels, including 15 warships and six Arctic patrol ships. The government has said it will select the winners within the next few months.

Canada has gone to “unprecedented” lengths to ensure the bidding process is fair and transparent, according to documents posted on the Public Works Department’s website. The government, which says the contract will help renew Canada’s navy and coast guard fleets, has banned bidders from retaining corporate lobbyists.

Five on Shortlist

A shortlist of five companies was issued in September: Kiewit Offshore Services of Newfoundland; Irving Shipbuilding, Davie Yards; an Upper Lakes subsidiary, Seaway Marine & Industrial Inc.; and Seaspan.

Upper Lakes will pay C$1 million to buy the shipyard assets and pay C$20.1 million to a Quebec government lending agency to settle a secured loan as part of the C$27.9 million transaction, said Marine-Christine St-Pierre, a spokeswoman for Davie Yards. The C$1 million will be distributed to Davie creditors.

The Davie Canada bid could get financial backing from the Quebec government, said a spokeswoman for Quebec’s economic- development minister, Clement Gignac.

“We’ve always said that we would support Davie as long as they get a viable plan to restart the yard and credible partners,” Jolyane Pronovost said in a telephone interview. While she wouldn’t elaborate on what kind of financial support the province would provide, she said the government won’t take an equity stake in the new company.

Provinces Weighing In

Other provincial governments are also weighing in. Nova Scotia Premier Darrell Dexter, who has actively urged the federal government to award the contract to Irving, said in an e-mailed statement that the “confusion around the other bids speaks for itself.”

“The government of Canada needs a dependable partner in this, and Irving Shipbuilding is it,” Dexter said in a statement provided by his office, adding that “all bids should be given the same treatment.”

British Columbia’s Pat Bell said the request for proposals made it clear the winning bidder had to be in good financial health.

“The bid criteria were that the company had to be on solid financial ground and in a solvent state and capable of delivering on a project,” said Bell, minister of jobs, tourism and innovation, in a phone interview. The province is prepared to provide financial support for Seaspan’s bid, he said, without elaborating.

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.

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