Egyptian investor Naguib Sawiris’ C$520m (US$504m) acquisition of Canadian fibre optic network operator Allstream has been blocked by the Canadian government.
Industry Canada’s decision to nix Accelero Capital’s deal to buy Allstream, a division…
Egyptian investor Naguib Sawiris’ C$520m (US$504m) acquisition of Canadian fibre optic network operator Allstream has been blocked by the Canadian government.
Industry Canada’s decision to nix Accelero Capital’s deal to buy Allstream, a division of Manitoba Telecom Services (MTS), was due to national security concerns.
Sawiris is non executive chairman of Accelero and a serial telecoms investor.
The government said in a statement that the transaction would not proceed after it had reviewed the national security provisions of the Investment Canada Act.
“MTS Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the government of Canada,” said James Moore, Canada’s Minister of Industry.
Accelero said it was dismayed by the decision and said it had met all the policy, legislative and business criteria required to close the deal.
Sawiris, Accelero’s co-founder, said: “Throughout this process, we were comforted by Industry Canada that our filings were in order, our submissions complete and constructive, and our proposed binding undertakings serious and substantive so that the transaction would meet the ‘net benefit’ test.
“We are disappointed by the government of Canada’s unfounded and unexpected decision.”
Sawiris first invested in Canada when he bankrolled Wind Mobile, which was created after it won AWS spectrum in 2008. Due to Canada’s strict foreign ownership rules he only ever held a minority stake in Wind, which was later passed to VimpelCom.
National security fears
Industry Canada’s rejection of the Allstream deal echoes its decision to block VimpelCom’s planned takeover of Wind earlier in the year. VimpelCom abandoned the deal after discussions with the country’s government.
Canadian officials were reported to be concerned about Wind’s network, built by China’s Huawei, being controlled by a partly Russian-owned company.
The regulatory decisions could be seen as contrary, given the same conservative government liberalised the rules around foreign investment in smaller telcos in 2012.
So far no foreign investor has been able to take advantage of the change in the law, which allows foreigners to hold 100% of telcos with 10% market share or less.
While the government has effectively blocked attempts by Accelero and VimpelCom to take over Canadian telcos, it has also been accused of actively courting Verizon Communications to persuade the US giant to enter the country as a nationwide fourth player.
In its statement Accelero said had Canada allowed the deal it would have “sent a strong message that Canada’s telecommunications sector is open to foreign investment”, and reminded the government that it had planned to invest C$300m (US$291m).
MTS stuck with Allstream
Industry Canada’s decision is also a blow for MTS, which will now have to go back to the drawing board still in possession of Allstream.
The regional operator hired Morgan Stanley and CIBC to assess strategic options for the unit in September 2012, following the liberalisation of telecoms investments from abroad.
In May it agreed the sale of Allstream to Accelero and at the time MTS’ CEO Pierre Blouin said the company would go forward as a “pure-play” telecoms operator.
Following the government’s decision to nix the Accelero deal MTS released a statement saying it was “extremely surprised and disappointed”.
MTS was unhappy by what it saw as inconsistency from the government.
“The federal government’s past active support of Accelero’s principals played a significant role in MTS Allstream’s decision to sell to Accelero following the company’s strategic review process,” Blouin said yesterday.
“The company was also heavily influenced by the fact that the proposed transaction is entirely consistent with recent changes in Federal policy aimed at increasing foreign direct investment in Canada’s telecom sector.”
MTS Allstream and Accelero and their advisers said they were now reviewing their options.
