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On October 3, 2013, the Minister of Industry, The Honorable James Moore (the "Minister") announced that Accelero Capital Holdings S.a.r.l's ("Accelero") proposed $520 million acquisition of Allstream, a division of Manitoba Telecom Services Inc. ("MTS"), would not be allowed to proceed under the national security provisions of the Investment Canada Act (the "Act").
Background
In May 2013, following a strategic review and an auction process, MTS agreed to sell Allstream to Accelero for $520 million. Allstream is a division of MTS that provides telecom services to businesses across Canada. Accelero is a private-equity firm which specializes in telecommunications.
According to MTS' press release, in deciding to proceed with the transaction, MTS was heavily influenced by the fact that several of Accelero's principals are a "well-known and experienced group of telecom executives who have previously been permitted to invest in and operate telecom assets in a number of countries around the world, including Canada (through Wind Canada)". MTS was also influenced by the fact that the same group of principals had previously led an investment of approximately $1 billion in Canada's telecommunications sectors and that the transaction was, according to the company, consistent with recent changes to Canada's policy aimed at increasing foreign direct investment in the telecom sector.
The parties to the transaction had provided significant binding undertakings to the Canadian government, including a commitment to invest $300 million over three years to pursue Allstream's capital plans. According to MTS, the transaction was of "net benefit" to Canada and would have, among other things:
- contributed to increased competition in Canada's telecommunications sector;
- sent a strong message that Canada's telecommunications sector is open to foreign investment;
- enabled Allstream to accelerate the introduction of innovative products to increase the productivity of Canadian businesses;
- provided MTS with the capital necessary to increase investment in Manitoba's telecom infrastructure; and
- resulted in $165 million of funding for MTS pension plans benefitting more than 100,000 plan members.
Investment Canada Act and National Security
Under the Act, the Canadian government automatically reviews foreign takeovers of businesses with more than C$344 million in assets. Amendments made in 2009 also permit the Canadian government to prohibit transactions believed to be "injurious to national security".
Without disclosing specific reasons for rejecting the transaction, the Minister noted that "MTS Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada".
Canada's rejection of the Allstream/Accelero transaction is only the third time since 1985 where the Canadian government has formally blocked a significant foreign takeover. In 2010, the Canadian government cited the importance of the fertilizer industry to the national economy to block BHP Billiton Ltd.'s $39 billion bid for Potash Corp. of Saskatchewan Inc. In 2008, the Canadian government blocked the acquisition of Canadian aerospace company MacDonald Dettwiler & Associates by Alliant Techsystems on grounds of national security.
Additionally, while not formally blocked, signals from Ottawa regarding potential national security concerns prompted Vimpelcom Ltd. to abandon its efforts to acquire control of wireless provider Wind Mobile in June of this year. Based on the outcome in the Allstream and Wind Mobile transactions, it appears that the Canadian government will closely scrutinize and potentially block foreign acquisitions of control of Canadian telecom providers (including both wired and wireless operations) under the national security provisions of the Act.
The Minister's rejection of the Allstream/Accelero transaction also clearly affirms that the net-benefit and national security reviews under the Act are distinct processes that must both be successfully concluded before a transaction will be allowed to proceed.
For a copy of the Minister of Industry's statement, please click here.
For a copy of the MTS press release, please click here.
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