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Uncertainty, cautious optimism surround Aecon deal

0 336 Economic

by Angela Gismondi last update:Nov 15, 2017

Industry leaders, economists and analysts are uncertain about what the future holds in the wake of Aecon Group's announcement that it was acquired by China Communications Construction Company International (CCCI) for $1.5 billion.
Uncertainty, cautious optimism surround Aecon deal

Some are concerned the Canadian construction sector is for sale, while others are pointing out new opportunities.

A release issued by Aecon Oct. 26 stated it agreed to be acquired by CCCI, the investment arm of China Communications Construction Company, one of the world's largest network of engineering and construction companies, headquartered in Beijing.

"We see this as a tremendous opportunity to strengthen our position in Canada and abroad," said Aecon president and CEO John Beck in a conference call with investors and analysts following the announcement. He added the company will continue to be based in Canada.

"It's an ideal partner to establish a base in Canada where we will operate under the same name and leadership we have today."

CCCI will acquire all the shares of Aecon for $20.37 per share in cash, Beck reported, which represents a premium of 42 per cent over the value of shares being traded on Aug. 24, 2017.

Although the Aecon board unanimously recommended the transaction, it is not a done deal yet. The transaction requires the approval of two thirds of the votes cast by shareholders at a special meeting which is expected to be held by the end of the year.

It also requires regulatory approvals under the Investment Canada Act and the Canadian Competition Act as well as authorities in China.

Prime Minister Justin Trudeau noted in recent media reports that the deal will be examined "very carefully" to ensure there is a benefit to Canadians.

The deal is expected to close in the first quarter of 2018, Beck said.

"This is a very good outcome for everyone associated with Aecon," said Beck. "CCCI will reinforce and enhance what we already do so well at home while creating new platforms and partnerships for us to expand our reach."

John Gamble, president and CEO of the Association of Consulting Engineering Companies — Canada, said he has a philosophical concern with a state-owned company coming into the Canadian marketplace to compete with private sector companies.

"While I don't begrudge Aecon shareholders taking advantage of an opportunity, I'm very concerned when such a major player in the construction sector is a state-owned company," said Gamble. "I have great concerns about the private sector having to compete with state-owned agencies. It potentially represents more consolidation in the industry."

Beck said Aecon "will be able to pursue additional international projects," adding in the past the company has limited the number of international projects it can work on because of its size. It will also help business at home.

"CCCI's size and financial strength will augment our access to capital and our ability to bid on larger and more complex projects in Canada. We believe this will enhance Canadian competition for construction services."

In its review of CCCI, the board was impressed with its 2015 acquisition of John Holland, an Australian engineering contractor, Beck explained.

"Since the acquisition, John Holland has continued to operate under the same name and brand and has had great success including retaining its Australian management team which continues to operate with significant independence winning major infrastructure projects," he said, adding he is optimistic Aecon will experience similar success.

Alex Carrick, chief economist for ConstructConnect, said the transaction shouldn't come as a surprise.

"China is becoming huge around the world. It's expanding its economic influence but, in particular, there's all kinds of major construction projects that Chinese companies are involved in," he explained.

With the uncertainty about Canada's relationship with the United States and the North America Free Trade Agreement, this could provide access to opportunities in other parts of the world such as Asia, Africa, Europe and South America.

"We can't rely on the U.S. to the same degree that we have in the past. We've got to think more strategically about what gets us out there in the world," said Carrick. "I think this is about trying to get a stronger toehold in other parts of the world — that's why they would want to be aligned with China on this because certainly on the surface it opens opportunities in other countries."

Analysts on the call asked if Aecon's nuclear work in Canada could pose a potential obstacle in obtaining regulatory approvals.

"We fully expect shareholders and regulators to approve the transaction and we haven't contemplated anything other than going through that process with a successful outcome," Beck responded.

Aecon has helped to build many of Canada's famous landmarks including the CN Tower, the St. Lawrence Seaway, the Vancouver Sky Train and Halifax Shipyards.

With Files from the Canadian Press

last update:Nov 15, 2017

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