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File photo of workers at the MTS Centre in Winnipeg.Phil Hossack/The Canadian Press

Egyptian billionaire Naguib Sawiris's deal to buy Allstream, sealed after a two-year pursuit, is likely the first step in a larger plan to create a new telecommunications competitor.

After being rebuffed back in 2011, the telecom magnate struck a $520-million deal for the business services division of Manitoba Telecom Services Inc. It culminated late Thursday after a volatile week for Accelero Capital Holdings, the investment firm that Mr. Sawiris co-founded and where he serves as non-executive chairman.

For the past six months, Accelero was working with Pamplona Capital Management, a London-based private-equity firm, on its bid for Allstream, according to two people familiar with the matter. The original plan was for Accelero to act as a managing partner, while Pamplona would be the primary source of funding.

That all changed in recent days, a source said, when their alliance fell apart in a heated dispute over the economics of the deal.

After an eight-month-long strategic review of Allstream, MTS asked a short list of bidders to put forward their best and final offers. Pamplona ended up submitting a competing offer for Allstream, while Mr. Sawiris salvaged Accelero's offer by offering up his personal funds.

Accelero emerged as the winning bidder on Friday, but there is renewed speculation that Allstream is just a stepping stone toward a larger deal. Accelero is also a potential bidder for Wind Mobile, sources say. And Mr. Sawiris is said to be partnering on a bid with Wind's chief executive officer Anthony Lacavera by way of his holding company AAL Corp.

Mr. Sawiris has a long-standing connection to Wind. As the former head of Cairo-based Orascom Telecom Holding SAE, he was Wind's original financial backer and has long dreamed of combining the Toronto-based wireless carrier with Allstream. Two years ago, Mr. Sawiris and Mr. Lacavera began sizing up Allstream and put in an offer for the division that valued it at roughly $600-million.

That offer was rejected by MTS's board, but Mr. Sawiris was undeterred and restarted the process about 10 to 12 months ago – around the time the federal government was finalizing changes to foreign-investment rules to allow small telecoms to be 100-per-cent foreign-owned.

A combination of the two telcos is still the "logical next step for Wind," said one source. The long-term plan is to use Allstream's vast fibre network to carry data traffic on Wind's cellular network, which is vital because of the growing popularity of smartphones.

Moreover, Allstream's corporate customer base is seen as being complementary to Wind's, while also giving the carrier a natural entry into the small-business market. The one risk, however, is that large enterprise customers could defect to incumbents.

Ossama Bessada, managing partner and co-founder of Accelero, declined comment on the investment firm's interest in Wind. But Mr. Bessada is no stranger to the carrier. Last year, he stepped down as head of European and North American operations for VimpelCom Ltd., which now owns a controlling stake in Wind's major investor Orascom.

"We view the two discussions as really separate," Mr. Bessada said in an interview on Friday. "So Allstream is a standalone deal.… The wireless discussion in Canada is a little bit different and a little bit more complicated – without clarity."

This is not the first time the idea of combining Allstream and a national wireless carrier has been contemplated. During the last spectrum auction in 2008, MTS partnered with Blackstone and the Canada Pension Plan as part of a consortium to launch a national wireless provider. The other goal was to enable Allstream to sell wireless in the national business market.

"No new entrant can really launch in the business market. It requires sales-force application, skills and expertise," said MTS chief executive Pierre Blouin. "So we did that but when the pricing of the spectrum got, in our opinion, out of hand or too expensive we basically backed off and just bid in Manitoba. But that was exactly our plan at that time – absolutely."


Accelero founder made false statements

A key executive of Accelero Capital, the Egyptian firm purchasing Allstream from MTS, was convicted in 2005 of making false statements to obtain a loan of more than $2-million from the U.S. Agency for International Development.

Khaled Bichara, one of Accelero's three founders, pled guilty in a Manhattan federal court to making the false statements as president and CEO of the Cairo-based Internet company LINKdotNet. According to the U.S. Attorney for the Southern District of New York, the company received a loan of approximately $2.1-million, which under an arrangement with the U.S. foreign aid agency was supposed to be spent on the purchase of communication equipment from a particular U.S. company. That company, however, did not exist. The money instead was used to buy equipment from an Egyptian firm and pay off an outstanding debt.

The maximum sentence in the case was five years in prison and a fine of $250,000. Mr. Bichara was sentenced to a $250 fine. A spokesperson for Accelero noted that Mr. Bichara has since "served as chief operating officer of VimpelCom, publicly listed on the New York Stock Exchange and chief executive officer of Orascom, publicly traded on the London Stock Exchange. His credibility in this sector is well deserved."

--Simon Houpt

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