Egyptian telecommunications company Orascom Telecom Holding SAE plans to take formal control of Canadian carrier Wind Mobile in the wake of key changes to this country's foreign investment rules.
The Cairo-based telco announced Sunday it will ask shareholders to approve a proposal that would see subsidiary Orascom Telecom Holding Canada Ltd. convert its sizable block of non-voting shares in Wind's parent company, Globalive Investment Holding Corp., into voting shares to give it majority control.
In addition to a takeover of Wind, that share-conversion plan would also pave the way for Orascom to restructure a loan to Globalive and forgive roughly $450-million of interest. By cleaning up Wind's balance sheet and simplifying its ownership structure, Orascom is likely preparing the Toronto-based carrier for an eventual merger with smaller rival Mobilicity.
"Orascom exercised a right they have always had to increase their voting shares," said Wind CEO Anthony Lacavera. "I see this as a big positive for Wind in that this will give them the confidence to continue investing in Canada and it positions us to lead the necessary new entrant consolidation."
Mr. Lacavera also stressed that there would be no changes to the company's shareholders agreement or business plan. He also dismissed speculation of a management shake up at Wind. Nonetheless, sources say the takeover proposal would also set the stage for Mr. Lacavera to retain full control of the Globalive holding company, while also retaining a minority interest in Wind Canada.
Orascom currently owns 32.02 per cent of Globalive's outstanding voting shares and 65.08 per cent of its total outstanding shares. If the share-conversion proposal is approved, Orascom's voting stake in Globalive would rise to 65.08 per cent, the company said.
Shareholders will vote on the proposal at a special meeting in November. Orascom, meanwhile, is also seeking approval from Canadian investment regulators that it expects to receive by late 2012 or early 2013.
Earlier this year, the federal government introduced new measures that allow for 100-per-cent foreign ownership of telcos with a market share of 10 per cent or less. Nonetheless, the market is likely to view Orascom's proposed takeover as a precursor to a merger or takeover of smaller new entrant Mobilicity.
For more than a year now, there has been persistent speculation about a Wind-Mobilicity union.
Until now, however, Wind's complicated ownership structure, along with various financial issues, have be key obstacles to securing a deal, according to sources.
Most analysts have long suggested that a merger deal will be struck ahead of Ottawa's next auction of wireless spectrum in 2013 since a combined entity would ostensibly have an easier time obtaining financing on more favourable terms.
Moreover, Wind has been dogged by rumours that its foreign financial backers are anxious to offload the asset and leave the Canadian market.
In 2008, Orascom's founder, Egyptian billionaire Naguib Sawiris, bankrolled Wind Mobile's purchase of $442-million in government wireless licences and then spent hundreds of millions more on the construction of its wireless network.
Orascom, though, has since merged with Amsterdam-based VimpelCom Ltd., which is reportedly less enamoured with its Canadian investments – especially since Wind has only achieved roughly 500,000 subscribers to date.