Ottawa rejects Allstream deal
Cites national security concerns
Already-dim hopes for an infusion of foreign investment in Canada’s telecommunications sector faded further Monday with news that Ottawa has rejected Manitoba Telecom Services Inc.’ s plan to sell its Allstream division to Accelero Capital Holdings.
The deal announced in May valued the Manitobabased company ’s e nt e r - prise wireline business at $520-million and the man behind the foreign buyer, Egyptian telecom magnate Naguib Sawiris, was already well known in Canada.
The federal government liberalized the rules on foreign investment in small telecom providers last year, but Industry Minister James Moore said in a brief statement Monday that after a review under the national security provisions of the Investment Canada Act, the transaction would not proceed.
“MTS Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada,” the statement said.
Pierre Blouin, chief executive of MTS, said in an interview he was profoundly disappointed with the decision, which came as a surprise after five months of review, and added that Ottawa did not provide a specific explanation for its concerns.
“[The government] opened the foreign investment restrictions and that was an important factor in our decision to launch the strategic review on Allstream that resulted in the transaction announced in May,” Mr. blouin said. “If there’s concern about foreign owners owning telecom infrastructure in canada, it’s challenging to understand why they changed the policy.”
He added that Ottawa was already familiar with Mr. Sawiris, who is one of the co-founders of Accelero, an investment firm focused on telecommunications.
“And in particular when you look at Accelero, which basically had the same principle that had been approved by the federal government a few years ago [as an investor in] Wind Mobile, which also was another factor when we considered Accelero for this transaction,” Mr. blouin said.
In his former role as head of Orascom Telecom Holdings SAe, Mr. Sawiris was one of the original backers of wireless startup Wind Mobile, which waged a lengthy battle with canada’s telecom regulator over its ownership structure before launching its business.
Ottawa overruled the canadian radio-television and Telecommunications commission and later changed the foreign investment rules to permit non-canadians to acquire small telecom providers with up to 10% share of the overall communications market.
In a statement Monday evening Mr. Sawiris too expressed disappointment in the decision, noting that Accelero’s founders previously led the investment of about $1-billion in canada’s telecom sector.
“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,” he said.
Mr. Sawiris has often used scathing words for canada’s telecom regulations, saying the government has some “very ridiculous old laws” when it comes to foreign investment and that he regrets his foray into this country’s wireless market. but in May when the MTS deal was announced, he said his firm had a long-term commitment to the canadian market.