Rejection! About the buyer or the seller?
Allstream deal had controversial buyer, but government pacts could be the dealbreaker
It could be argued that no investor has done more to promote new competition in Canada’s telecommunications market over the last half-dozen years than Naguib Sawiris, but Ottawa, it seems, is finished with him.
On Monday, the federal government rejected a bid by the Egyptian telecom magnate’s investment firm Accelero Capital Holdings to buy Allstream — the wireline enterprise services division of Manitoba Telecom Services Inc. — attributing the decision to national security concerns after a review under the Investment Canada Act.
The move came as a surprise to many in the industry who felt the government’s history with Mr. Sawiris would make approval relatively straightforward and raised the question of whether it was the man himself or the asset his firm sought to buy that doomed the deal.
“In 2008 and 2009, [the government] bent the rules to accommodate this company — led by the same Naguib Sawiris,” said Dvai Ghose, head of research at Canaccord Genuity. “[They] then change the rules to in part accommodate Naguib Sawiris, but four years later he’s a security risk?”
Under CEO Hal Kvisle, Talisman has put a number of assets on the block, including gas properties in Western Canada, its Norwegian North Sea operations and a 12% stake in an oil pipeline in Colombia, in a bid to raise up to $3-billion over 18 months. Its turn-around efforts have also included employee layoffs and cuts to capital spending.
Mr. Kvisle said last month about a dozen parties have been through the company’s data room for its North Sea holdings. Talisman is also eyeing possible joint ventures or potential sales of its positions in Alberta’s liquids-rich Duvernay shale formation and British Columbia’s Montney play.
A Talisman spokeswoman declined to comment on Mr. Icahn’s stake Tuesday. The company is making progress on asset sales, Phoebe Buckland said in an emailed statement. “It is a difficult market, which is why we have given ourselves time to explore options.”
Talisman has faced activist pressure before, amid concerns the company is not moving fast enough to change course. Early this year, Toronto-based West Face Capital called for changes at the board and share repurchases.
Talisman has added three new directors this year, includ- ing North West Upgrading chief financial officer Tom Ebbern and TD Bank chairman Brian Levitt. But Mr. Kvisle rebuffed demands for share buybacks, saying activists focused on short-term gains were “somewhat disconnected” from the company’s major institutional shareholders.
Talisman has been punished for having a far-flung asset base — it spans six continents — and its focus on unprofitable shale gas plays. The company’s assets are “undervalued,” said a Sept. 25 regulatory filing with the U.S. Securities and Exchange Commission by Icahn Capital LP. Mr. Icahn intends to “have conversations” with Talisman management about strategic alternatives, including asset sales or potential corporate restructuring, the filing said.
Investors viewed the billionaire’s stake in Talisman as a sign the company is headed for a corporate breakup or an outright sale.
“The marketplace gets really fed up waiting for something to happen,” said one investor. “From my perspective, Carl Icahn sees that the sum of the parts is worth more than the whole, and so I suspect he wants to split the company up.”
Such a move is complicated by Talisman’s joint-venture agreement with China Petrochemical Corp. in the U.K. North Sea, according to RBC analyst Greg Pardy.
Sinopec last year bought a 49% interest in Talisman’s U.K. division for US$1.5-billion. A sale of Talisman’s remaining interest requires Sinopec’s consent, Mr. Pardy said in a Sept. 24 note.
Asset sales in Western Canada have also cooled considerably since last year’s frenzy, with observers pointing to delays building infrastructure, new investment rules crafted by Ottawa and a glut of product on the market as reasons for the slowdown.
Talisman has said it could strike a deal for its stake in the Ocensa pipeline by year-end, while sales of its Duvernay and Montney holdings could take longer.
“Everyone sees the potential here, but it’s a tough market,” said David Neuhauser, managing director at Northbrook, Ill.-based Livermore Partners, which has roughly $100-million under management and recently added Talisman shares.
“It’s not going to be as simple as coming in and selling off a couple things and flipping it around for $20 a share. I think it’s a longer grind.”