Canada Rejects MTS Allstream Sale to Accelero on Security

Canada rejected Manitoba Telecom Services Inc.’s C$520 million ($504 million) sale of its Allstream division to Accelero Capital Holdings Sarl Group, the investment firm co-founded by Egyptian billionaire Naguib Sawiris, citing national security concerns.

MTS Allstream operates a national fiber-optic network that provides “critical telecommunications services to businesses and governments, including the government of Canada,” Industry Minister James Moore said in a statement today. He did not elaborate on his concerns.

“MTS Allstream is extremely surprised and disappointed by this decision,” the Winnipeg-based company said in a statement. “MTS Allstream and Accelero have responded openly and constructively to Industry Canada’s requests for information in the 136 days since the transaction was announced.”

The decision raises questions about Canadian ownership policy in the wireless industry. Prime Minister Stephen Harper’s government has been trying to encourage competition in the nation’s wireless sector, while stepping up scrutiny of foreign investments. It tightened the national security provision of its foreign-takeover law in June, and made changes to boost oversight of acquisitions by state-owned enterprises.

“Accelero has proposed far-reaching, comprehensive and binding undertakings to the Canadian government, including a commitment to invest C$300 million over three years to pursue Allstream’s capital plans,” Manitoba Telecom said, adding the two companies are reviewing their options.

‘No Appeal’

“We were told right at the end of the afternoon that the minister has now rendered the decision and that was it,” Pierre Blouin, Manitoba Telecom’s chief executive officer, said in an interview. “There’s no appeal in that type of process.”

The Canadian government automatically reviews foreign takeovers of businesses with more than C$344 million in assets under a law called the Investment Canada Act. The law allows the government to block deals deemed a threat to security.

In a separate statement, Paris and Cairo-based Accelero said it was disappointed in the decision, which it called “unfounded and unexpected.”

In his earlier foray into Canada, Sawiris’s Orascom Telecom Holding SAE backed Wind Mobile, an Ontario-based startup carrier, with a $700 million loan in 2008, helping finance the company’s purchase of wireless spectrum.

Wind Mobile’s initial strategy of offering cheap prepaid wireless service faced competition from other discount operators such as Public Mobile, as well as the established brands.

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