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SNC-Lavalin Group Inc. risks becoming a takeover target if its stock continues to trade at depressed values while its corruption case winds through the courts, analysts say.

Canada’s biggest engineering firm said on Wednesday the Public Prosecution Service of Canada has advised it will not at this time invite the company to negotiate a settlement agreement that could have suspended and eventually stayed corruption and fraud charges against the firm. Without such a deal, the Montreal-based company faces potentially years of uncertainty as its case pushes through trial and possible appeals.

One of the possible effects of the prosecutors' decision is “persistent undervaluation” of SNC-Lavalin shares, said Chris Murray, analyst with AltaCorp Capital in Toronto. “[This] makes the company a takeover target, with all the political ramifications that would be associated.”

The increased likelihood of an unsolicited bid for SNC-Lavalin highlights the political pitfalls that might result from the prosecutors' decision. Opinion is fairly clear in Quebec that the company should not fall into foreign hands.

Mr. Murray is among those who believes SNC might still win a negotiated settlement before all is said and done. He notes the federal government developed the settlement mechanism, called a remediation agreement, with the SNC-Lavalin case in mind. He says the prosecutors' office could be trying to signal its independence from government with the decision, or that it needs more time to evaluate the system given that it only became effective last month.

Frederic Bastien, an analyst with Raymond James, agrees. “We find this decision egregious” given that SNC-Lavalin long ago cleaned up its act and put in place a world-class ethics and compliance system, Mr. Bastien said in a note to clients. “Notwithstanding this setback and the added uncertainty it creates for all SNC stakeholders, we still believe the company will come to terms with [federal prosecutors] and that patient investors will be rewarded for owning the stock long-term.”

At current share-price levels, SNC-Lavalin’s core engineering and construction business is trading at 4.8 times the 2018 earnings-per-share estimate for the business, Canaccord Genuity analyst Yuri Lynk said. Typically, engineering and construction companies trade between 10 and 20 times forward earnings, he said.

"Where do we go from here? In our view, management and the board should be looking at options such as a 'go private' transaction or an outright sale given the current valuation disconnect in the market," Mr. Lynk said in a note.

How big is the disconnect? SNC-Lavalin’s current share price of about $44 implies that its core engineering and construction business is worth $2.3-billion, Mr. Lynk said. SNC paid $3.6-billion for British firm Atkins last year, meaning a buyer could get a big discount on Atkins today and SNC’s engineering business for free.

Prosecutors laid rare corruption and fraud charges against SNC in February, 2015, alleging the company paid millions of dollars worth of bribes to public officials in Libya between 2001 and 2011 to secure government contracts. A preliminary inquiry is scheduled to be heard starting Oct. 29 in Quebec Superior Court.

After years of lobbying by SNC-Lavalin and others, the Trudeau government adopted negotiated settlement agreements earlier this year as a way to hold companies accountable for alleged wrongdoing while reducing the harm that a trial or criminal conviction would inflict on employees and other third parties.

Despite the new system, Canada is at the “back of the pack” of Organization for Economic Co-operation and Development (OECD) countries when it comes to clamping down on the bribing of officials abroad, Transparency International said in a report released last month. More than two decades after signing the OECD convention to stamp out the white-collar crime, Canada’s standing dropped from “moderate” to “limited enforcement,” the report said, pointing to this country’s insufficient enforcement record.

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