November 22, 2010 / 3:23 PM / in 7 years

UPDATE 2-Aecon sells Churchill stake to focus in-house

* Sells 14.7 pct stake for C$60.8 mln to AIMCo

* Says rationale for closer ties diminished

* Churchill stock jumps almost 5 pct (Recasts with analyst comments, background, stock move)

By Nicole Mordant

VANCOUVER, British Columbia, Nov 22 (Reuters) - In a surprise move on Monday, Aecon Group Inc (ARE.TO) said it had sold its recently acquired stake in Churchill Corp CUQ.TO for a small profit, marking an end to plans for closer ties on building projects.

The sale will allow Aecon, Canada's biggest publicly traded construction company, to instead focus in-house on fixing its money-losing buildings division and to absorb Cow Harbour, the oil sands construction company it bought in August.

Churchill's stock leaped almost 5 percent on the Toronto Stock Exchange following the news of the sale to Alberta Investment Management Corp, or AIMCo, one of Canada's biggest institutional fund managers. Aecon's shares were flat.

"Because AIMCo is considered as a strategic investor, willing to likely participate in Churchill's future growth plans, the investment should be viewed positively by Churchill shareholders," said NCP Northland Capital Partners analyst Maxim Sytchev..

"Aecon only has so much ability to juggle so many balls at the same time," said Sytchev.

Aecon's building division has been struggling for some time with low-margin business and earlier this month posted a C$2.6 million ($2.5 million) operating loss for the third quarter. Management hopes that by folding the unit into Aecon's robust infrastructure division it will be able to win more, and more profitable, work.

"The hope here is that, on a blended basis, they should be able to generate better margins than on each segment on a stand-alone basis," Sytchev said.

"When management makes such a commitment, the expectation is that a lot of effort and focus will be put on it," he said.

Aecon said earlier it had sold its 14.7 percent stake in Churchill for C$60.8 million after costs just five months after investing in the fellow Canadian construction company.

The sale resulted in a pre-tax gain of C$2 million for Aecon.

Aecon announced in June that it had bought a stake in Churchill because it saw an opportunity "to explore areas of mutual interest" over time.

"Since that time, the significant progress we have made in merging Aecon buildings into our infrastructure operations, and the expansion of our core business in Western Canada to include mining, have diminished the rationale for exploring further strategic alignment with Churchill," Aecon said in a statement on Monday.

In August, Aecon bought privately owned Cow Harbour for C$180 million in a bid to stake a deeper claim on a revival in Western Canada's oil sands industry.

Churchill's stock was up 84 Canadian cents, or nearly 5 percent, at C$18.14 late Monday morning.

Aecon's stock was unchanged at C$10.30.

$1=$1.02 Canadian Reporting by Nicole Mordant; editing by Rob Wilson

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