SNC-Lavalin looking to unlock value with sale of Alberta power transmission firm

MONTREAL -- SNC-Lavalin is looking to unlock some of the engineering giant's hidden value by selling a minority stake in AltaLink, it's second-largest infrastructure investment and one which owns more than half of Alberta's electricity transmission grid.

The company, which has been reducing its investments in infrastructure assets, said Monday all options for AltaLink would be considered, including a private sale, strategic alternatives or turning to the public market.

"We believe this is a world-class asset that should garner a lot of attention and generate great value for our shareholders," said Gerry Grigoropoulos, executive vice-president for infrastructure concession investments.

AltaLink operates about 12,000 kilometres of transmission lines and 280 substations in the province, serving about 85 per cent of the population. It also received regulatory approval in December for a $1.5-billion transmission line extension to run 350 kilometres from Genessee, west of Edmonton, southward to Langdon, east of Calgary.

SNC-Lavalin's infrastructure portfolio also includes the Highway 407 toll road near Toronto, a Montreal hospital and the Montreal symphony hall.

Earlier this year, the company signed a deal to sell 66 per cent of its minority interest in Astoria Project Partners II LLC, which owns and operates the gas-fired Astoria II power plant in New York City.

It is also looking to sell an airport in Malta, but has invested in Ottawa's first-ever light rail transit system as part of the Rideau Transit Group Partnership.

Grigoropoulos said plans to sell a minority portion of AltaLink will relieve SNC-Lavalin of some of its obligations to fund AltaLink's expansion, which industry observers believe could be $600 million to $1 billion over the next three years.

He said the sale would allow the Montreal-based engineering giant to focus on its strategic goal, announced in May, of targeting growth in the resources sector, including oil and gas, mining and metallurgy and environment and water.

"Now we have a lot capital tied into the ICI portfolio and the idea is to convert some of that capital into the high-growth E&C (engineering and construction) business," he said in an interview.

Grigoropoulos said SNC-Lavalin doesn't have a preference for the type of transaction and noted that price is only one factor.

"The other consideration is to find a very good partner that we can have a good working relationship with."

He wouldn't say if Highway 407 -- its largest concession asset -- will make it to the chopping block, nor whether some of the proceeds would be returned to shareholders.

Maxim Sytchev of Dundee Capital Markets said some of the proceeds should be used for a special dividend or to buy back company shares to further lift the company's current share price, which limits its financial ability to complete a large merger or transaction.

"I think the next step is to be somewhat shareholder friendly as well so it's not just redeploying $400 million from AltaLink hypothetically into a large-scale acquisition. It has to be sort of give and take from that perspective," he said in an interview, noting SNC's shares are lagging its peers.

Sytchev said a sale to strategic or passive (pension fund) investors is preferable to a spinoff, and could be followed by Highway 407.

"It's high quality assets which any pension fund on the planet would love to own," he said of SNC's two largest concession holdings.

The Caisse de depot et placement du Quebec declined to say if it's interested. The pension fund manager owned more than six million SNC shares, worth $245.5 million, as of Dec. 31.

Other analysts also applauded the announcement, suggesting AltaLink is worth upwards of $1.5 billion, or about $10 per share. That's equivalent to nearly a quarter of SNC-Lavalin's (TSX:SNC) trading price, which closed up $1 or 2.4 per cent at $42.35 in Monday trading on the Toronto Stock Exchange.

Pierre Lacroix of Desjardins Capital Markets expects SNC-Lavalin to sell 20 to 25 per cent of AltaLink.

"We believe that monetizing a portion of SNC's interest in AltaLink represents a catalyst for the shares, especially given that the current share price does not reflect the full value of AltaLink," he wrote.

Any sale would need the approval of the Alberta Utilities Commission, which would likely take several months. SNC-Lavalin expects the transaction to be completed by late 2014.