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SNC-Lavalin bulks up energy business with $2 billion Kentz buy

By Euan Rocha and Susan Taylor

TORONTO (Reuters) - Canada's SNC-Lavalin Group Inc will buy resource-sector engineering group Kentz Corp in a 1.16 billion pound ($2 billion) deal that SNC said on Monday will accelerate its turnaround plan, including the sale of noncore assets.

SNC, Canada's biggest engineering and construction company, said the acquisition of the British company will help stabilize its business and expand its high-growth and high-margin operations in the oil and gas industry.

It said the takeover, which the boards of both companies have approved, will add to its earnings within the first full financial year after closing, and will boost its order backlog by C$4.9 billion ($4.5 billion) to about C$13 billion.

Montreal-based SNC's headcount will increase by about 14,500 to a total of 44,500 employees under the deal, with 18,500 in the oil and gas sector. That will allow it to undertake larger, more complex projects and boost its presence in higher-growth regions such as the Middle East, North America and Asia Pacific, the company said.

Since becoming SNC's chief executive in 2012, Robert Card has sought to stabilize the company, which was rocked by a far-reaching misconduct scandal earlier that year that was rife with allegations of bribery and fraud.

In an interview with Reuters on Monday, Card said SNC is keen on the oil and gas sector, and may do smaller bolt-on deals that fill specific technical or geographic niches. "We have some building blocks in mind," he said.

Citing increased confidence, SNC said it now expects to sell its 16.8 stake in Toronto's 407 toll highway earlier than it had expected. It had indicated it was looking at a sale within a one- to three-year period.

Canada Pension Plan Investment Board (CPPIB), which manages the national pension fund and owns a 40 percent stake in Highway 407, said it is keen on any transaction involving the asset.

"It has performed really well since we acquired a stake in it. There are all sorts of rights (of first refusal) among the shareholders, and if an additional piece comes up for sale, we will certainly look at it," CPPIB's head of Private Investments, André Bourbonnais, told Reuters.

LNG ALLURE

Since Kentz went public in 2008, it has grown rapidly with mining, oil and gas, and infrastructure projects around the world.

It came close to being sold last year, but bids from both Germany's M+W Group and British rival Amec were rejected as too low.

SNC will offer each Kentz shareholder 935 pence per share, a 33 percent premium to the stock's Friday close on the London Stock Exchange. Kentz shares were up 32 percent at 928 pence on Monday, while SNC shares were 1.5 percent higher at C$53.17.

Neil Bruce, who left his post as Amec chief operating officer last year to head SNC's resources group, said the deal strengthens SNC's position in attractive areas such as shale gas and oil sands. He said the company is also well-placed for an expected liquefied natural gas (LNG) boom in Western Canada.

"We've just ticked another box, in terms of our oil and gas piece within LNG, that makes us a formidable contractor," he said.

SNC calls 2014 a year of rebuilding and consolidation, and says that its strategy includes acquisitions that add services, blue chip customers, or expand its geographic reach.

Card said SNC is also interested in the environment and water, power and transportation sectors, and is eyeing services businesses in the mining sector while valuations remain low.

(Additional reporting by Susan Taylor in Toronto and Karen Rebelo in Bangalore; Editing by Jeffrey Hodgson, Saumyadeb Chakrabarty, Lisa Von Ahn and Peter Galloway)

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