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May 24, 2018

Trudeau blocks Chinese takeover of Aecon on security grounds

What comes next for Aecon after Ottawa blocks Chinese takeover


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The Canadian government blocked a proposed takeover of construction firm Aecon Group Inc. by a unit of China Communications Construction Co . in the latest move by Western nations weighing national security concerns associated with Chinese investment.

Prime Minister Justin Trudeau’s government announced its decision Wednesday after launching a security review of the C$1.2 billion ($934 million) deal, according to a statement from Innovation Minister Navdeep Bains obtained by Bloomberg News. Aecon later confirmed the takeover offer by CCCC International Holding Ltd. had been rejected. A CCCC spokesman in Beijing said the company couldn’t immediately comment.

U.S. President Donald Trump earlier this year blocked Broadcom Ltd.’s hostile takeover of Qualcomm Inc. because it could “impair the national security of the United States.” Trump has killed several foreign deals involving China since taking office and his administration continues to spar with China over trade. This is the first major foreign takeover blocked by the Trudeau government since he won power in 2015.

“We listened to the advice of our national security agencies throughout the multi-step national security review process under the Investment Canada Act,” Bains said in the statement. “Based on their findings, in order to protect national security, we ordered CCCI not to implement the proposed investment.”

Canada is “open to international investment that creates jobs and increases prosperity, but not at the expense of national security,” Bains added.


CCCI’s Beijing-based parent, CCCC, is one of the biggest engineering and construction companies in the world and is the largest contractor building China’s Belt and Road Initiative across Asia through to Africa. Its core businesses include infrastructure construction and design and dredging. The company posted revenue of 460.1 billion yuan ($72 billion) last year.

CCCC is also the company responsible for building the atolls used by the Chinese military in the South China Sea, and it was blacklisted by the World Bank from 2009 to early 2017 for fraudulent practices.

Aecon operates companies across the mining, infrastructure, energy and services industries, building projects from factories, roads and sewers to theaters, book stores and hotels, according to its website.


Shares of Aecon, which helped build Toronto’s iconic CN Tower, have declined in recent weeks to the lowest since the deal was announced in October on concern that it would be blocked. Aecon’s construction work includes several sectors that could impact national security, including building out the nation’s telecommunications networks.

Aecon closed at C$17.34 in Toronto trading Wednesday, 15 percent below the C$20.37 a share offer from CCCC International to acquire the construction firm. Before the recent declines, there was widespread speculation in Canada that the deal might be approved as Trudeau sought warmer ties with China.

“While we are disappointed with the government’s decision, Aecon is and will continue to be a leading player in the Canadian construction and infrastructure market,” President and Chief Executive Officer John Beck said in a statement late Wednesday. The deal had offered “considerable benefits,” but the company will now move forward, including by reinstating a search for a new CEO, the statement said. Aecon has “a significant pipeline of opportunities ahead of it.”


A person familiar with the file, speaking on condition of not being identified, said the government did its due diligence and ultimately followed the advice of Canadian national security agencies that had reviewed the deal and had information that wasn’t publicly available.

Aecon’s project portfolio includes work in sensitive fields such as telecommunications, nuclear power and military housing and training facilities, Anita Anand, a professor of law at the University of Toronto who holds J.R. Kimber Chair in Investor Protection and Corporate Governance, said in an interview before the decision was announced. She had called for it to be blocked.

“There is clear evidence that there are national security issues at play in this transaction,” she said in an earlier interview. If government sees “reasonable grounds to believe there’s a potential injury to national security, then it should intervene.”


The move comes at a critical point for the future of the country’s trade relationships. Canada is considering launching trade talks with China as it seeks to become less reliant on the U.S. market. It is also haggling with the U.S. and Mexico over how to update the North American Free Trade Agreement.

Chinese acquisitions in Canada’s economy have cooled since 2012, when the previous Conservative government imposed limits on investment by state-owned enterprises in the energy sector following CNOOC Ltd.’s takeover of Nexen Inc. in Alberta.

In 2009, national security considerations were formally added as a consideration under Canada’s foreign investment review process. The Canadian Security Intelligence Service warned in 2012 that some foreign state-owned enterprises may represent a threat to national security.