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May 24, 2018

China's $1.5-billion Aecon takeover is dead. Now what?

What comes next for Aecon after Ottawa blocks Chinese takeover

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The federal government killed the $1.5-billion takeover of Aecon Group (ARE.TO) by a unit of China Communications Construction Company on Wednesday, citing national security concerns.

It was a dramatic setback for the Canadian infrastructure giant, which has played a role in iconic projects like Toronto's CN Tower, coming seven months after the deal was first announced.

Below, BNN Bloomberg looks at what happens next.

AECON'S SALE PROCESS

The company formally put itself up for sale in August, two months before the CCCC deal was announced. At the time, it tasked BMO Capital Markets and TD Securities with exploring a sale. In a release late Wednesday, Aecon said it's "no longer actively pursuing a sale process," but will consider "strategic options" from time to time.

"In our view, we do not believe investors should be anchoring their expectations that another bidder will emerge shortly, as it is unlikely that another entity is willing to pay the same premium for Aecon assets as the [CCCC] proposal," wrote National Bank analyst Maxim Sytchev in a report to clients.

AECON'S LEADERSHIP

The company said Wednesday it will restart its search for a new chief executive officer to replace John Beck, who was brought back into the role in November 2016 after then-CEO Terrance McKibbon stepped down.

AECON'S STOCK

CCCC's offered $20.37 per Aecon share in the proposed takeover. Aecon’s stock topped out at $20.06 on Jan. 26, and slumped all the way to $17.34 as of the close of trading Wednesday, prior to the government's decision. "We continue to like Aecon for its strong business fundamentals, pristine balance sheet and record backlog," wrote Desjardins Capital Markets analyst Benoit Poirier in a report to clients Thursday. Poirier has a buy recommendation on the stock with a $20 per share price target.

AECON'S PROJECT PIPELINE

In acknowledging the government's decision, Aecon declared it will move forward "from a position of strength," pointing to a record $4.6-billion project backlog, with big wins since the end of the first quarter, including its stake in the Montreal light rail transit project and a light rail project in Toronto.

CANADA-CHINA RELATIONS

Economic Development Minister Navdeep Bains defended the government’s decision on Thursday and said he doesn’t think it will cause any damage to Canada’s ties with the world’s second-largest economy. “We’re open for trade, we’re open for investment, but not at the expense of national security,” Bains said. “Our relationship with China is very strong … this is one transaction. I’m confident that we’ll continue to work together.”

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