Manitoba Telecom Services (MTS) says that the Canadian federal government has rejected a proposed sale of its Allstream unit to an Egyptian investment group because of "unspecified national security concerns".
The Winnipeg-based company said that it was "extremely surprised and disappointed" by the government's decision not to approve the deal. The deal was announced with Accelero Capital last May and and was valued at $520 million dollars.
In a statement, MTS said: "MTS Allstream and Accelero continue to believe this transaction is to Canada's net benefit and to the best of our knowledge would not be injurious to national security" .
The rejection is somewhat surprising since Accelero is owned by the Egyptian telecom billionaire Naguib Sawiris. Sawiris was allowed to invest in a small wireless company Wind Mobile that operates within Canada. The Industry Minister James Moore confirmed reports that the sale was rejected under the national security terms of the Investment Canada Act. In an e-mail Moore said: "The result of this review is that the transaction will not proceed". Moore did not say what the security concerns were but did say: "MTS Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada."Accelero had agreed to invest $300 million over three year in Allstream. MTS Allstream CEO Pierre Blouin issued a statement saying: "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".
The Conservative government of Stephen Harper has stressed that it is open for business and it has encouraged foreign investment in the Canadian telecom business to increase competition including Accelero's investment in WInd Mobile. The purchase makes sense for Accelero and would increase competition. Sawiris noted: "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. Accelero has an impressive track record of successful investments in many of the countries with whom Canada enjoys global strategic partnerships."
MTS operates the largest telecommunications business in Manitoba. Many analysts were surprised at the rejection of the sale, including Dvai Ghose, head of research at Canaccord Genuity: "... Sawiris’s strong financial support of Wind Mobile, and the government’s failed attempts to entice foreigners to invest in Canada’s wireless new entrants, yesterday’s rejection, on the grounds of ‘national security concerns,’ comes as a huge surprise”. The President of the Treasury Board, Tony Clement says that the federal government will also be watching for any national security implications for any sale of troubled BlackBerry Ltd.