Manitoba Telecom Services (MTS Allstream) announced yesterday that the Canadian federal government has rejected the proposed acquisition of its Allstream long-distance and enterprise telecoms division by Accelero Capital Holdings, which had been agreed in May this year. MTS said it was ‘extremely surprised and disappointed’ by the decision to block the USD500 million purchase by the Egyptian-backed company on unspecified ‘national security’ grounds. MTS added that the government had rejected an offer from MTS and Accelero to take whatever actions are necessary to address the security concerns. MTS and Accelero – owned by Egypt’s Naguib Sawiris, a former principal investor in Canadian cellco Wind Mobile – are now ‘reviewing their options’ with their respective legal and financial advisors.
Industry Minister James Moore stated that the Accelero-Allstream deal was blocked under the national security provisions of the Investment Canada Act, noting that Allstream operates a national fibre-optic network providing critical telecoms services to government and business users, although he did not clarify Ottawa’s concerns in any further detail. News agency Reuters noted that a precedent for the government’s action occurred in 2008 when it blocked an attempt by Canada’s MacDonald, Dettwiler and Associates (MDA) to sell its satellite division to US-based Alliant Techsystems, similarly citing national security concerns under the Investment Canada Act.
TeleGeography’s GlobalComms Database says that MTS had long been mulling a move to sell off the Allstream division, and the attempt to do so was eventually prompted by the Canadian government’s lifting of foreign ownership restrictions on telecoms operators with less than 10% of market revenues in June 2012. MTS’s CEO, Pierre Blouin, said in yesterday’s statement: ‘We pursued this transaction, with Accelero as our partner, in direct response to the Federal Government’s stated policy objectives of increasing foreign investment and driving greater competition in Canada’s telecommunications sector, so this result is very difficult to understand or accept.’ As a result of the Allstream sale transaction being disallowed, the long-distance/enterprise division will once again be reported as part of MTS Allstream’s consolidated results, which will be impacted by approximately CAD35 million (USD34 million) due primarily to a combination of non-recoverable, transaction-related expenses and restructuring costs incurred in contemplation of the transaction. Furthermore, results are expected to be otherwise negatively affected due to the disruptive impact of a long regulatory process on Allstream’s business performance.