Insolvent Davie’s Assets Surface in Canadian Navy Contract Bid
Posted by adminJuly 21 (Bloomberg) — A plan to use insolvent Davie Yards Inc.’s assets to bid on a C$35 billion ($37 billion) contract for the Canadian Navy has drawn objections from competing shipbuilders, who want Canada to enforce a rule barring bankrupt firms from the country’s biggest public works tender.
Upper Lakes Group, a Toronto-based shipyard operator, and Seoul-based Daewoo Shipbuilding and Marine Engineering Co. Ltd. intend to acquire Davie’s assets, a spokeswoman for engineering firm SNC-Lavalin Group Inc. said by e-mail. Levis, Quebec-based Davie has been in bankruptcy protection since last year.
“The Davie Yards assets would be acquired by a new entity held jointly by Upper Lakes Group and DSME, with the aim of putting the shipyards back into operation as quickly as possible,” said Leslie Quinton, SNC’s vice president of global corporation communications.
The bidding deadline is 2 p.m. Ottawa time. Upper Lakes and Daewoo need the approval of the Quebec Superior Court, which has been supervising Davie’s protection from creditors, to acquire the shipyard’s assets. The court was still considering the transaction late yesterday.
If the companies acquire the assets, SNC will join Daewoo and Upper Lakes in bidding on the C$35-billion contract, Quinton said. The contract will supply Canada with about 30 vessels, including 15 warships, six Arctic patrol ships and a polar-class icebreaker.
Under the rules of a tender document issued in February, companies cannot be insolvent or in court-supervised bankruptcy protection when they submit a bid. Using Davie’s assets as part of a bid violates the spirit of the rules, if not the letter, rival bidders say.
‘Clearly Articulated’
“That requirement has been known for a long time,” said Jonathan Whitworth, chief executive officer of Seaspan Marine Corp., a Vancouver-based company that has already submitted its bid. “Whether or not you believe the rules are fair, the rules have been very clearly articulated.”
The Canadian government says it’s gone to “unprecedented” lengths to ensure the bidding process is fair and transparent, according to documents posted on the Public Works Department’s website. The federal government, which says the contract will help renew Canada’s navy and coast guard fleets, has banned bidders from retaining corporate lobbyists.
A shortlist of five companies, including Davie Yards and Seaspan, was issued in September. An Upper Lakes subsidiary, Seaway Marine & Industrial Inc., made the list, as did Irving Shipbuilding Inc. of Nova Scotia and Kiewit Offshore Services of Newfoundland.
Quebec Backing
The bankruptcy issue can be addressed by acquiring the Davie assets rather than the entire corporate entity, said John Dewar, Upper Lakes’s vice-president of strategic services, in a telephone interview. “A bid could proceed based on the purchase of the assets by a new company,” he said.
Should the plan succeed, it could get financial backing from the Quebec government, said a spokeswoman for Quebec’s economic-development minister, Clement Gignac.
“We’ve always said that we would support Davie as long as they get a viable plan to restart the yard and credible partners,” Jolyane Pronovost said in a telephone interview. While she wouldn’t elaborate on what kind of financial support the province would provide, she said the government won’t take an equity stake in the new company.
Other provincial governments are also weighing in. Nova Scotia Premier Darrell Dexter, who has actively urged the federal government to award the contract to Irving, said in an e-mailed statement that the “confusion around the other bids speaks for itself.”
‘Dependable Partner’
“The government of Canada needs a dependable partner in this, and Irving Shipbuilding is it,” Dexter said in a statement provided by his office, adding that “all bids should be given the same treatment.”
British Columbia’s Pat Bell said the request for proposals made it clear the winning bidder had to be in good financial health.
“The bid criteria were that the company had to be on solid financial ground and in a solvent state and capable of delivering on a project,” said Bell, minister of jobs, tourism and innovation, in a phone interview. The province is prepared to provide financial support for Seaspan’s bid, he said, without elaborating.
Daewoo said in a July 19 e-mail to Bloomberg News that while it plans to bid on the Canadian contract, it has no plans to buy a shipyard.
–Editors: Paul Badertscher, John Simpson
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