SNC Hires Morgan Stanley-RBC Team to Study AltaLink Sale

SNC-Lavalin Group Inc., Canada’s biggest engineering and construction company, hired Morgan Stanley and Royal Bank of Canada to help sell an equity stake in its AltaLink power-transmission unit.

SNC will explore all options for the unit, including a private sale, public market alternatives or strategic partnership, according to a statement today. The Montreal-based company’s shares rose the most in more than three months.

Chief Executive Officer Robert Card, who took over a year ago, is reshaping SNC after a corruption scandal involving his predecessor that led to a fraud investigation and investor lawsuits. Card told analysts in August he wanted the company to exit some infrastructure investments as they reach maturity.

AltaLink is worth about C$10 per SNC share, or about C$1.5 billion ($1.46 billion), Pierre Lacroix, a Desjardins Capital Markets analyst in Montreal, said in a note to clients. A sale of a 20 percent to 25 percent stake in the unit “seems to be likely,” said Lacroix, who recommends buying SNC shares.

Today’s announcement “reinforces our view that SNC is making substantive progress toward the goals set out at its annual meeting in May,” he said. Selling part of the AltaLink holding “represents a catalyst for the shares.”

SNC climbed 2.4 percent to C$42.35 at the close in Toronto, its largest advance since June 7. This year, the shares have risen 5 percent, topping the Standard & Poor’s/TSX Composite Index’s 2.8 percent gain.

‘Build Value’

The sale process “represents a significant advancement of our plan to rebalance our portfolio of infrastructure concessions to build value for our company,” Gerry Grigoropoulos, an SNC executive vice president, said in the statement.

AltaLink, founded in 2002, operates and maintains about 12,000 kilometers (7,500 miles) of transmission lines and 280 substations in the western Canadian province of Alberta. The company owns more than half of Alberta’s transmission grid and serves 85 percent of its population.

Any transaction would be subject to regulatory approval by the Alberta Utilities Commission, Matthew Kolodzie, an analyst at RBC Capital Markets in Toronto, said in a note to clients.

AltaLink plans to invest about C$6.5 billion in the next six years, Maxim Sytchev, an analyst at Dundee Capital Markets in Toronto, said in a June 4 note to investors.

“SNC needs to support AltaLink’s capital expenditures over the coming number of years,” Sytchev, who rates the shares buy, said in a note today. “While SNC is in a net cash position, AltaLink’s cash requirements would have still posed a drag to SNC’s cash balance. A sale to a strategic or passive investor is even better when compared to a spinoff as it creates a mark-to-market transaction while ‘cementing’ the value.”

AltaLink contributed net income of C$31.1 million in the first six months of 2013, up from C$24.2 million a year earlier, SNC said Aug. 2 in a regulatory filing.

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