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Pierre Blouin, Chief Executive Officer of MTS Allstream and Manitoba Telecom Services Inc., is photographed in the company's corporate headquarters in Winnipeg Thursday, February 21, 2013. (JOHN WOODS/The Globe and Mail)
Pierre Blouin, Chief Executive Officer of MTS Allstream and Manitoba Telecom Services Inc., is photographed in the company's corporate headquarters in Winnipeg Thursday, February 21, 2013. (JOHN WOODS/The Globe and Mail)

MTS chief bewildered by nixed Allstream deal Add to ...

A surprise decision to reject the foreign purchase of a small Canadian telecom player left observers confused Tuesday, including the chief executive of Manitoba Telecom Services who said no one understands Ottawa’s rules on acquisitions.

MTS chief executive Pierre Blouin said he has received no explanation on why the federal government quashed the sale of his firm’s Allstream division to the Egyptian investment group Accelero Capital for $520-million late Monday.

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In a statement, Industry Minister James Moore cited “national security” concerns, but Blouin said the government never mentioned any such issue during a five-month approval process.

Nor has the government given him the ability to restructure the deal to satisfy their requirements, he said, adding that other companies could become discouraged with making future investments in the telecom sector if there is not more clarity.

“Not only do foreign investors not know what the rules are, companies in Canada don’t know what the rules are either,” said Blouin.

“It would be very good and needed for the telecom industry of Canada to have the rules of the game clarified as we move forward.”

Foreign investment experts said the decision places a large question mark over the repeated refrain from Conservative government ministers that Canada is open for business.

Walid Hejazi, a business professor with Toronto’s Rotman School of Management, notes that the Organization for Economic Co-operation and Development already rates Canada above average in terms of its restrictions.

Since the Conservatives came to power in 2006, the Harper government has repeatedly tweaked the Investment Canada Act, making it more restrictive each time, including a near ban on majority acquisitions in the oil patch by state-owned enterprises.

The government also rejected two previous takeovers — that of Macdonald, Dettwiler and Associates by an American suitor, again for national security reasons, and of Potash Corp. by Australia’s BHP Billiton.

Last fall, it kept international energy companies — China’s CNOOC and Malasiya’s Petronas — dangling for months before finally giving the go-ahead of their acquisitions, while also amending to rules so that such deals would be unlikely in the future.

The puzzle with the latest rejection, said Hejazi, is that the government had made efforts to open up the domestic telecom sector to foster competition, all but begging U.S. giant Verizon into the space to challenge Canada’s Big Three — Rogers, Bell and Telus.

As well, the company it ruled out for national security reasons — Accelero Capital — had already been involved in Canada as the majority investor in Wind Mobile.

In a television interview, Employment Minister Jason Kenney said national security trumps all other considerations, including job creation.

“We have to listen to the advice that we get from intelligence and police security agencies (and) that’s what we’re doing,” he said.

Allstream maintains Internet services for sensitive Canadian government installations and facilities, added Kenney, and the government has decided not “to allow a foreign company (for) which there are concerns” to tap into those services.

Ian Lee of Carleton University’s Sprott School of Business said he believes Canada’s murky investment rules appear to be emerging with every decision.

“If you are a private, for-profit company from an OECD country, you are going to get the green light. However, if you are from a country that is not an ally, such as Russia, China or the Middle East, or you are a state-owned enterprise, you are either going to get a red light or a yellow light,” he said.

Lee added the Harper government also puts great store on security, saying it might have been concerned that the Allstream network could have facilitated spying activities in Canada.

Last week, CIBC executive Jim Prentice, a former foreign industry minister himself, warned that the government was chasing away needed foreign investment with its new regulations against state-owned enterprises buying into the oil patch.

He cited figures that showed investment inflows into the oil and gas sector had fallen off a cliff so far this year, to $2-billion from $27-billion during the same period last year. As well, mergers and acquisitions dropped to $8-billion from $66-billion, and Chinese investment had all but dried up.

Shares in Manitoba Telecom fell $2.74, or 8.47 per cent, to close at $29.62 on the Toronto Stock Exchange.

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