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Jul 23, 2019

Caisse ignored my call for SNC activist run: Portfolio manager

SNC-Lavalin needs to completely clean house: Shareholder David Taylor

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A frustrated SNC-Lavalin Inc. (SNC.TO) shareholder said the Caisse de dépôt et placement du Québec’s blistering criticism of the embattled construction company on Monday was long overdue.

“I commend the Caisse for coming out publicly and chastising the management team, but go back and look at the last annual meeting,” David Taylor, president and chief investment officer at Taylor Asset Management – which has owned “a significant position" in SNC for about a year – said in an interview with BNN Bloomberg on Tuesday. “I believe the board got a 96- or 95-per-cent approval rating.”

“So, where was the Caisse then? This hasn’t just happened in the last week.”

Taylor said that his firm has repeatedly asked the pension fund to consider an activist role among the company’s shareholders, but that his requests have been met with silence.

“We tried reaching out to the Caisse and other large shareholders and nobody had any interest in talking to us,” Taylor said, adding that his firm has reached out on multiple occasions over a span of a year and a half.

“They don’t need us. They’re 20 per cent shareholders… But in the U.S., shareholders get together all the time and they bounce ideas off each other and they talk about their frustration. Things that can be done,” he added later in the interview.

Caisse publicly chastised SNC in a statement on Monday, calling for action from the company’s board in the face of a stock price that has tumbled more than 50 per cent this year.

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“For the benefit of all the company’s stakeholders, the new strategic direction must be comprehensive and capable of reversing the current unacceptable trend of the business,” Caisse said in its statement. “We also expect this strategy to be accompanied by a realistic plan for its execution.”

Representatives from Caisse have not yet responded to BNN Bloomberg’s request for comment in regards to Taylor’s overtures.

Taylor said that sweeping changes at SNC will be necessary to restore investor confidence.

“There’s a complete lack of confidence and trust in this company and you’ve got to completely clean house,” he said.

“You want investors to come back? And you want them to put in nine-or-10-times multiple on your good business? Then you’ve got to change from top to bottom. It’s just not going to happen.”

One portfolio manager was less bullish on SNC’s future, however.

“The reality is this situation with SNC has been a disaster,” Middlefield Capital Corp. President and Chief Investment Officer Dean Orrico told BNN Bloomberg earlier on Tuesday.

“This thing may be beyond saving at this point.”

However, Taylor pointed to the turnarounds at Home Capital Group Inc. (HCG.TO) and Element Fleet Management Corp. (EFN.TO) – which have both seen triple-digit percentage stock price recoveries after activist intervention – as evidence that activism works when companies are in need of a turnaround.

“You’ve got these passive shareholders in Canada that just seem to trust the board and [are] willing to just ride along with a loser and not take action,” Taylor said. 

“Go back and look at what happened at Element, look at what happened at Home, and those stocks have recovered significantly. And you had to change the entire culture.”

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