June 11, 2019 / 12:03 PM / 9 days ago

Construction firm SNC-Lavalin names interim CEO, announces strategic review

(Reuters) - SNC-Lavalin Group Inc, weighed by weakness in its mining division and a surprise loss last month in its construction business, named an interim CEO and announced a quick strategic review on Tuesday, boosting its slumping shares as investors hoped for a turnaround.

FILE PHOTO: SNC-Lavalin Chief Operating Officer Ian Edwards and SNC-Lavalin President and Chief Executive Officer Neil Bruce speak during the company's annual shareholder's meeting in Montreal, Quebec, Canada May 2, 2019. REUTERS/Dario Ayala

Chief Operating Officer Ian Edwards will take over as interim president and chief executive officer from Neil Bruce as the company’s shares hover near 15-year lows. Bruce, who has been at the helm for more than three years, will remain as an adviser to the board until the end of the year.

“The Board of Directors has asked Mr. Edwards to undertake a review of the strategic direction of the Company on an expedited basis and to develop a plan for sustainable success,” the company said in its statement.

Montreal-based SNC-Lavalin faces a trial here in Canada over fraud and corruption charges related to allegations that former executives paid bribes to win contracts in Libya under Muammar Gaddafi's regime, which fell in 2011. The company's unsuccessful attempts to reach a settlement led to a political scandal engulfing Prime Minister Justin Trudeau.

Michael Willemse, a senior research analyst at Taylor Asset Management which holds SNC stock, said by phone that Bruce’s departure was not a surprise, given rumblings from shareholders since January, when the company cut its 2018 profit forecast here and shares tumbled.

Shares of the company have nearly halved in 2019, pressured by trade challenges in Saudi Arabia, headwinds in metals and mining and the corruption trial. They jumped as much as 7.5% after the announcement and were later up 6.7% to C$25.30 in midday trading.

“We look forward to see what Ian Edwards has planned to help move the company forward,” Willemse said. “When the stock underperforms like it has, sometimes you need a change of leadership.”

While investors did not blame Bruce for the political scandal or the years-old corruption allegations, they had concerns about SNC’s handling of a contract terminated this year by Chilean state miner Codelco, Willemse said.

The company is also caught in the crosshairs of an ongoing diplomatic spat between Saudi Arabia and Canada over a number of issues which have strained relations between the two countries.

Willemse said he is nevertheless optimistic about having new blood at the helm of SNC at a time when the company is selling its 10.01% stake here in an Ontario toll road to help pay down debt.

“The company is positioned pretty well for a rebound,” he said.

SNC is also cutting costs and is weighing options to increase shareholder value and announced its exit from 15 countries here earlier this year and reported a surprise quarterly loss in its main engineering and construction unit.

Analysts at National Bank of Canada Financial Markets applauded the strategic review which appears to prioritize consistency and cash flow.

“If the company itself cannot get there, a privatization should also be strongly considered. We believe many shareholders will agree with our take on what makes sense from a directional perspective..,” added the analysts, rating the company’s shares “outperform”.

Reporting by Shanti S Nair in Bengaluru and Allison Lampert in Montreal; Editing by Shinjini Ganguli and David Gregorio

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