SNC-Lavalin Group Inc. said on Feb. 9 it would sell its underperforming oil and gas business to an energy services company backed by private equity firm Blue Water Energy LLP, sending the Canadian group’s shares up more than 8% in early trade.
The sale to Kentech Corporate Holdings Ltd. will allow SNC-Lavalin to focus on its high-performing engineering services.
The Montreal-based construction and engineering company had announced restructuring actions in July 2019, including plans to exit fixed-price contracts to reduce its risk profile.
“Our priority is absolutely in the growth of the engineering services business, so to get this fully transitioned to being a leading professional services and project management company,” SNC-Lavalin CEO Ian Edwards told analysts.
Exiting oil and gas fixed-price contracts would further reduce the company's business risk, he said.
While the deal is expected to close in the second quarter of 2021, Montreal-based SNC-Lavalin expects a fair value write-down in the range of $260 million to $295 million, almost entirely non-cash in nature, in the fourth quarter of 2020.
The company said in a statement its resources unit would mainly comprise service projects in the mining and metallurgy division.
Kentech expects the deal to accelerate its revenue growth to $1 billion on a pro forma basis by the end of 2021.
SNC stock rose 8.25% to C$24.67 a share in Toronto trading.