October 16, 2018 by David Paddon and Julien Arsenault, The Canadian Press
MONTREAL—SNC-Lavalin Group Inc. shares plunged to their lowest close since early 2016 Oct. 10 after the company revealed that federal prosecutors won’t negotiate a deal that could reduce the time SNC spends in court fighting fraud and corruption charges laid against it in 2015 following an investigation of activities by some of its former employees.
Shares of the Montreal-based engineering and construction company fell nearly 14 per cent after the prosecutors’ decision was announced, closing at $44.86 on the Toronto Stock Exchange. That’s the lowest close since March 2, 2016.
The drop came after federal prosecutors declined to “invite” the company to negotiate an remediation agreement, also known as a deferred prosecution agreement or reparation agreement, using a new provision of the criminal code.
“The criminal code defines the criteria for reparations agreements; the (prosecutor’s office) determined that the criteria were not met,” the Public Prosecution Service of Canada said in a brief email without elaborating.
Chief executive Neil Bruce said the decision will probably result in three or four more years of court battles as the company defends itself.
“We truly believe we’re not guilty,” Bruce said in an interview.
In the meantime, Bruce acknowledged that the uncertainty surrounding the case weighs heavily on its investors and its 50,000 current employees, who he described as innocent people who have been trying to rebuild the company.
“Financial markets, you know, don’t like uncertainty. You can see the damage that this has caused to the company and to the market capitalization and share price today.”
Canaccord Genuity analyst Yuri Lynk wrote that he was surprised that the prosecutors hadn’t agreed to negotiate with the company and lowered his price target for SNC shares to $61 from $73.
Lynk wrote that he doesn’t think it’s likely SNC-Lavalin will be barred from doing business with the federal government, in part because the company has a good defence case and because “it is unlikely the government would allow a company employing thousands of people in Canada to fail because of the transgressions of a handful of people.”
But he added that, at $44 per share, SNC-Lavalin becomes more of a takeover target because its hard infrastructure assets are worth about $31 per share without considering the value of its engineering and construction business.
“In our view, management and the board should be looking at options such as a ”go private” transaction or an outright sale, given the current valuation disconnect in the market,” Lynk wrote.
SNC and two of its subsidiaries were charged in February 2015 following a years-long RCMP investigation into activities by several individuals working for the company
The charges against the company stem from allegations that SNC-Lavalin — under a previous management team — paid nearly $48 million to public officials in Libya between 2001 and 2011 to influence government decisions.
The RCMP has also charged the company, its construction division and a subsidiary with one charge each of fraud and corruption for allegedly defrauding various Libyan organizations of roughly $130 million.
A few months after the charges were laid, SNC signed an administrative agreement that enables it to continue doing business with the federal government while the court process winds on.
Earlier this year, the company settled two civil suits over allegations of misleading investors about its activities in Libya. The company said it would pay $88 million and insurance payments would bring the total settlement to $110 million.