Verizon studies return to Canadian mobile market; Wind ownership transfer delayed by ‘security concerns’

18 Jun 2013

Verizon Communications is examining a plan to acquire a second-tier Canadian mobile operator, and has held ‘exploratory talks’ with investors in Globalive Wireless (Wind Mobile) in recent weeks, while Mobilicity has also been identified as a potential acquisition target for the US group, according to sources familiar with the situation cited by The Globe & Mail. Wind Mobile has been earmarked for a sale or merger by its main financial backer Vimpelcom and CEO/founder Anthony Lacavera, while the Canadian government recently vetoed Mobilicity’s attempt to sell itself to larger Canadian rival Telus, and the two smaller cellcos are viable for purchase by a foreign investor ahead of the 4G licence auction set for January 2014. Verizon was previously a 20% shareholder in Telus, but exited in 2004. Other potential foreign investors rumoured to be eying the opportunities presented by the 700MHz auction include AT&T of the US, UK-based Vodafone (a shareholder in Verizon) and Norway’s Telenor (a shareholder in Russian-controlled Vimpelcom), but the Canadian government reportedly views Verizon as the ‘most likely’ overseas group to help support a federal policy of encouraging a strong fourth mobile competitor in every region of the country.

Despite indicating that it is willing to sell its stake in Wind Mobile, Vimpelcom is currently awaiting closure of a delayed voting share transfer deal that would give it full control of the company following last year’s relaxation of foreign ownership rules by Ottawa. Anthony Lacavera is in the process of transferring his voting stake to Vimpelcom under a deal agreed in January, but with the transaction pending federal approval it was reported in March that Lacavera had proposed a joint offer to buy back Wind from Vimpelcom in collaboration with Wind’s original financial backer Naguib Sawiris’ investment firm Accelero Capital (which in May agreed to purchase Manitoba Telecom Services’ Allstream national long-distance division). Other potential suitors reported to be mulling a bid for Wind include Fairfax Financial Holdings, Canadian device maker BlackBerry’s largest individual shareholder. The Vimpelcom-Lacavera share transfer agreement is set to expire by the end of this month, an industry source with knowledge of the situation told Reuters.

‘National security concerns’ are behind the Canadian government’s reluctance to approve the transfer of Wind’s voting share control to Vimpelcom, according to unnamed sources quoted by The Globe & Mail, which claimed that Ottawa is wary of Wind’s infrastructure passing to a majority Russian-owned entity.

CommsUpdate reported in January 2013 that Mr Lacavera agreed to transfer his controlling shares in Globalive Wireless Management Corp (trading as Wind Mobile) to Orascom Telecom Holding (OTH) – a majority owned unit of Vimpelcom – and step down from his current posts to continue in a non-operational capacity as Wind’s honorary chair, while retaining a small economic stake in the company. Under the terms of the agreement, OTH would indirectly acquire all of the Globalive Wireless Management Corp shares held by AAL Corp, a holding company majority owned by Anthony Lacavera. As part of the consideration to be paid to AAL Corp (which includes cash consideration and a continuing economic participation in Wind Mobile for AAL Corp), the Globalive group’s fixed line assets (including the Globalive name and trademark) would be transferred to AAL Corp, and upon closure the Vimpelcom division would own an indirect 99.3% stake in Globalive Wireless Management Corp. However, completion is subject to Canadian regulatory approval of the conversion of OTH’s non-voting shares into voting shares, which would result in OTH holding an indirect 65.1% voting and economic interest in Globalive Wireless Management Corp immediately before completion of the aforementioned transactions with AAL Corp. OTH currently holds an indirect 32% voting interest and 65.1% economic interest in Wind Mobile; AAL Corp currently holds an indirect 66.7% voting interest and 34.3% economic interest. Amsterdam-headquartered Vimpelcom – in which the Russian Alfa Group owns a majority equity stake – said in October 2012 that Egypt-based OTH was changing its name to Global Telecom Holding, although the title change is yet to take effect.