Canada: Canadian Government Rejects Accelero–Allstream Deal On National Security Grounds

On October 7, 2013, Minister of Industry James Moore announced that the "Government of Canada has concluded its review of Accelero Capital Holdings' proposed acquisition of the Allstream division of Manitoba Telecom Services Inc. (MTS) under the national security provisions of the Investment Canada Act. The result of this review is that the transaction will not proceed." The announcement, which came more than four months after Accelero announced its proposed $520 million acquisition of Allstream, took the market by surprise.

This is only the third transaction that the government has blocked under the Investment Canada Act (ICA) (outside the cultural area) since the legislation was enacted in 1985. The others were Alliant Techsystems' (Alliant's) proposed acquisition of MacDonald Dettwiler and Associates' (MDA's) Information Systems Business in 2008 and BHP Billiton's hostile bid for Potash Corp in 2010, as explained in a 2010 Osler  Update. It is also the first transaction to expressly be disallowed on national security grounds since the national security regime (NSR) was added to the ICA in 2009.

Under the general provisions of the ICA, a non-Canadian seeking to acquire control of a business in Canada exceeding prescribed monetary thresholds must obtain ministerial approval on the basis that the proposed investment is of "net benefit" to Canada. In addition, the Canadian government has broad discretionary powers under the ICA's NSR to review, prohibit and impose conditions on a broad range of investments by non-Canadians if it determines that the investment is "injurious to national security." Even minority investments by foreigners that would not constitute an acquisition of control of a Canadian business under the generally applicable ICA rules may be reviewed under the NSR. The standard for review is purposefully opaque and, like the situation applicable to decisions regarding whether a particular investment is of net benefit to Canada, the government is not statutorily required to provide reasons for decisions it makes under the NSR.

Although several transactions were quietly rejected or abandoned because of national security concerns prior to Allstream-Accelero, this transaction marks the first affirmative rejection of a foreign investment specifically on national security grounds since the NSR was added to the ICA in 2009. Other transactions include the following:

  • In April 2008, the Minister rejected the proposed acquisition of MDA's Information Systems Business by U.S. defence contractor Alliant. Alliant would have gained access to MDA's proprietary Radarsat technology as a result of the acquisition, which had been described as a tool to protect Canadian sovereignty. As there was no formal NSR under the ICA at the time of this transaction, the acquisition was disallowed on the grounds that it did not satisfy the general net benefit test under the ICA.
  • In November 2008, Canadian-based uranium producer Forsys Metals Corp. (Forsys) announced that it was being acquired by George Forrest International Afrique S.P.R.L. (GFI), an African conglomerate involved in the civil engineering, mining and manufacturing sectors. However, in August 2009, Forsys announced that GFI had received a letter from Industry Canada prohibiting it from completing the proposed transaction pending further notice (see Forsys press release). Although Forsys terminated the transaction shortly after the notice was received and no further details were released by Industry Canada, media reports pointed to security concerns relating to the potential supply of uranium by GFI/Forsys to Iran.
  • In October 2012, Orascom Telecom Holding S.A.E. (Orascom), a subsidiary of Vimpelcom Ltd., announced plans to acquire control of Globalive Wireless Management Corp. and its subsidiary, Wind Mobile (Wind). In June 2013, Orascom announced that it was withdrawing its application for approval under the ICA. Although Orascom gave no specific reasons for its withdrawal and the Minister did not issue a final decision under the ICA, media reports suggested that the proposed transaction gave rise to national security concerns as a result of the ownership of Vimpelcom Ltd. and Wind's use of Chinese-supplied technology in its wireless network infrastructure.

The government's decision to reject the Allstream-Accelero transaction on national security grounds sends a strong signal to prospective foreign investors that the Canadian government actively reviews foreign investment through a national security lens. It also is of particular importance for the following reasons:

  • Increased uncertainty for investors. There have been long-standing concerns about the inherent lack of transparency in the government's application of the general net benefit test under the ICA. What exactly constitutes a net benefit is unclear, and, at least from a foreign investor's perspective, the application of the test is unpredictable because it seems to vary considerably from deal to deal. These concerns were heightened by the government's decision in December 2012 to restrict state-owned enterprise (SOE) investment in the oil sands and to implement more restrictive rules and broader discretionary powers in regard to the government's review of SOE investments generally (see Osler's December 2012  Update and May 2013  Update. The government's decision in the Allstream-Accelero transaction exacerbates these concerns because it highlights the opaqueness of the "injurious to national security" test in the ICA. The Minister provided no reasons for the decision to reject the deal on national security grounds except to state that "MTS Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada." Accelero is reported to have offered to make a number of concessions to address the government's concerns, including discontinuing carriage of sensitive government data and refraining from using certain Chinese-sourced telecom equipment in the Allstream network. The failure to provide an explanation as to what type of risk the Accelero deal posed, combined with the government's broad discretionary powers under the ICA, increases the existing considerable uncertainty for potential investors and sellers.
  • Mixed messages and confusion for potential investors in the telecom sector. The Harper government has made significant efforts to attract foreign investment in the telecom sector, including liberalizing the foreign ownership restrictions for the small telecommunication carriers market (as explained in a May 2012 Osler  Update and a March 2010 Review), eliminating foreign ownership restrictions in the satellite industry and, most recently, actively soliciting Verizon and other foreign investors to participate in the upcoming auction for spectrum in the 700 Mhz band (see Osler  Update).

    In light of its very public efforts to increase foreign investment in the telecom sector, the Harper government has now blocked a significant foreign investment in this sector. The confusion created by this decision is compounded by the fact that this government is quite familiar with one of the principals of Accelero, Mr. Sawiris, who was the former head of Orascom, the original backer of Wind. In fact, in 2009 the government took the unprecedented step of overruling the Canadian Radio-television and Telecommunications Commission after it had determined that Wind was not Canadian-controlled. Then, following more than two years of legal proceedings, the government changed the foreign ownership rules to permit non-Canadian control of carriers holding less than a 10% share of the overall communications market.
  • Implications for BlackBerry's sale process. The day after the Allstream-Accelero decision was announced, Tony Clement, Treasury Board President and former Minister of Industry, stated that the government will be reviewing any foreign investment from a national security perspective. When asked if the government wants BlackBerry to remain Canadian-owned, the media reported that Mr. Clement responded: "What we want is obviously a stable environment. I think that we'll let the marketplace respond. We have a role to play obviously, which involves national security and making sure that what occurs is in the public interest and we take that responsibility seriously. It's not my place here to speculate on what would or would not be inside or offside that. So we'll let it play out in the marketplace and if and when the government has to respond, we certainly will."

    As previewed by Mr. Clement, the NSR will feature prominently in the sale of BlackBerry. The Accelero-Allstream decision will likely add to the uncertainty regarding BlackBerry's future.

In 2008, as reported in an Osler  Update, the government-commissioned Competition Policy Review Panel recommended a number of changes to the ICA, many of which have been implemented. One of the recommendations that has not (yet) been implemented is the recommendation that the ICA be amended to require the government to assume the burden of demonstrating that a foreign investment was contrary to Canadian interests in order to block a particular transaction. The Panel indicated that such an amendment could reduce uncertainty for Canadian businesses and foreign investors without compromising the federal government's ability to implement its investment objectives.  We will watch to see whether the government's recent rejection of the Allstream-Accelero transaction will renew calls for improvements to transparency and accountability with respect to decision making under the ICA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
Osler, Hoskin & Harcourt LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Osler, Hoskin & Harcourt LLP
Osler, Hoskin & Harcourt LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions