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October 11, 2018

SNC Lavalin stock plunges after federal prosecutors decline to negotiate a deferred prosecution agreement

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SNC-Lavalin Group Inc. shares plunged to their lowest level in years on Wednesday after it announced that federal prosecutors won’t agree to negotiate a deal that would set aside unproven fraud and corruption charges in return for fines, co-operation and other reparations.

The Montreal-based engineering and construction company’s shares were down more than 14 per cent, trading at about $44.20 on the Toronto Stock Exchange shortly after 1 p.m. The stock hasn’t closed below $45 since early 2016.

The drop came after federal prosecutors declined to “invite” the company to negotiate an remediation agreement, also known as a deferred prosecution agreement or reparation agreement, using a new provision of the criminal code.

“The criminal code defines the criteria for reparations agreements; the (prosecutor’s office) determined that the criteria were not met,” the Public Prosecution Service of Canada said in a brief email without elaborating.

SNC said it continues to defend itself against all charges and is reviewing its option to appeal the decision.

CanaccordGenuity analyst Yuri Lynk wrote that he was surprised that the prosecutors hadn’t agreed to negotiate with SNC, saying its management had expressed great optimism a deal would be possible.

“Should SNC be found guilty, it could be debarred from bidding on Canadian federal work. However, we view this outcome as unlikely, noting (1) SNC has a strong case and (2) we think it is unlikely the government would allow a company employing thousands of people in Canada to fail because of the transgressions of a handful of people.”

SNC and two of its subsidiaries were charged in February 2015 following an RCMP investigation into their dealings in Libya.

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