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Report on Business Ferrovial SA to appeal court decision awarding SNC-Lavalin’s stake in Highway 407 to CPPIB

Highway 407 in Ontario has proven to be a lucrative toll road. (File Photo).

Louie Palu/The Globe and Mail

The legal wrangling over SNC-Lavalin Group Inc.'s attempts to sell a stake in Ontario’s Highway 407 will continue, as Ferrovial SA has decided to appeal a recent court decision that kept it from increasing its stake in the lucrative toll road.

SNC initially announced on April 5 that it struck a deal to sell a 10-per-cent stake in Highway 407 to the Ontario Municipal Employees Retirement System (OMERS) for $3-billion in cash and as much as $250-million in future payments over 10 years. But Infrastructure company Ferrovial’s Cintra Global subsidiary and Canada Pension Plan Investment Board, existing co-owners of the 407, exercised their rights to block the transaction by matching the offer.

SNC, however, said that Cintra had signed a past agreement waiving its right to match the offer it the stake was sold to a financial buyer who was not a competitor to it. Cintra disagreed, arguing that OMERS, as a major owner and operator of infrastructure projects, was indeed a competitor. It failed to persuade the court.

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Cintra has notified the Court of Appeal for Ontario, SNC and CPPIB about its intention to appeal, according to a person familiar with the matter who requested anonymity because they were not authorized to speak publicly about it.

SNC spokesman Nicolas Ryan said the appeal “has no impact” on his company, as SNC, Cintra and CPPIB had all agreed that even if the court’s decision were to be reversed on appeal, the sale would proceed and CPPIB and Cintra would adjust the number of shares of Highway 407 they own. The company said Aug. 15 the sale had closed.

The sale provides some measure of relief for beleaguered SNC shareholders, who have seen the company’s shares fall by two-thirds this year. SNC has said it intends to use the sale proceeds to pay down debt.

Previously, CPPIB held just over 40 per cent, with Cintra owning 43.2 per cent and SNC 16.8 per cent. SNC sold 10 per cent of the 407, giving it 6.8-per-cent and CPPIB 50.01 per cent. CPPIB declined to comment.

Fund manager Stephen Jarislowsky, a former director of SNC, pushed the company earlier this year to hold a shareholder vote on its decision to sell a stake in Highway 407. He argued the asset is likely to double in value over the next decade and is “one of the finest investments that I know.”

The firm he founded, Montreal-based investment manager Jarislowsky Fraser Ltd., now controlled by the Bank of Nova Scotia, disclosed in a filing Tuesday that it increased its bet on SNC-Lavalin. Jarislowsky bought 3.97 million shares in the engineering firm at an unspecified time, taking its stake to 18.97 million shares or 10.8 per cent of the company, the filing shows.

SNC said Tuesday that it has “fully paid” OMERS the “break fee” it owed of just over $80-million.

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Editor’s note: (Sept. 11, 2019) In a lawsuit regarding the sale of a stake in Ontario’s Highway 407, Ferrovial SA argued that Ontario Municipal Employees Retirement System (OMERS) is a competitor to it in owning and operating infrastructure. A story in Tuesday’s Globe inaccutately said Ferrovial made the argument regarding Canada Pension Plan Investment Board .
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