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Kentz Bows to Third Bidder SNC-Lavalin

NEW YORK (The Deal) -- Canadian engineering giant SNC-Lavalin Group on Monday said it has agreed to pay 1.16 billion pounds ($1.97 billion) for U.K. oilfield services provider Kentz Corp.  to more than triple its revenue from the oil and gas sector.

Montreal-based SNC-Lavalin will offer 935 pence per Kentz share, a 33% premium to the target's Friday close, after winning the support of Kentz's board. The bid is almost twice as much as Kentz was offered in September when its board rejected bids from Amec plc and M+W Group GmbH.

"Although the board of Kentz believes the company has a strong future as an independent business, it considers that this cash offer substantially recognises the company's growth prospects, providing certainty, in cash, to Kentz shareholders today," CEO Christian Brown said in a statement.

The deal for Kentz comes just under six months after it paid $435 million for Valerus Field Solutions, to expand its operations into U.S. shale gasfields. Valerus was owned by TPG Capital.

Buying Kentz will enable SNC-Lavalin to increase its revenue from oil and gas operations by about $1.8 billion, to about 24% of its total, up from the current 7%. Kentz had revenue of about $2.2 billion in 2013 and $95 million of net profit, including the Valerus business, according to a SNC-Lavalin presentation on the deal.

The buyer said it expects the oil and gas market to be the world's fastest-growing infrastructure sector as well as one of the most profitable and most stable.

"The acquisition is an important milestone in our strategy for growth," said SNC-Lavalin president and CEO Robert Card. "It complements our client offering, further broadens our geographic reach in high-growth regions, and is expected to drive revenue growth and cross-selling opportunities."

Kentz makes about a third of its revenues from each of construction services, technical support and engineering, all within the oil and gas sector. Its clients include ExxonMobil Corp., Chevron Corp. and Royal Dutch Shell plc.

The acquisition is expected to be earnings accretive from the first year and to result in annual cost savings of about C$50 million ($47 million).

SNC-Lavalin said it will pay for the acquisition using cash at hand and new loans. Its bid has received the irrevocable support of Kentz's directors and other shareholders representing 14.4% of the company.

SNC-Lavalin is taking financial advice from RBC Europe Ltd.'s Michael Fortier, Kevin J. Smith and Peter Buzzi, as well as a Morgan Stanley team of Dougal Macdonald, Paul Radchuck, Adrian Doyle and Ilya Kiykov.

It took legal advice from a Norton Rose Fulbright team including Raj Karia, Stephen Kelly, Paul Whitelock, Andrew Phillips, Robert Borduas, James Dunnett, Ian Giles and Richard Wagner. SNC-Lavalin's in-house team included Rejean Goulet and Jean-Eric Laferriere.

Stikeman Elliott LLP's Marc Barbeau acted as special board counsel.

Kentz is taking financial advice from Investec Bank plc's Chris Sim, Duncan Williamson, George Price and Symmie Swil. Kentz is taking legal counsel from Simmons & Simmons' Edward Baker.

- Claire Poole contributed to this report.

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