Wind Mobile's foreign backers have abandoned their eight-month bid to formalize control over the company, casting a pall over the future of Canada's largest independent wireless carrier.
The surprise move by Vimpelcom Ltd.'s Cairo-based subsidiary, Orascom Telecom Holding SAE, sows further turmoil in Canada's wireless market at a time when the federal government is trying to salvage its goal of having at least four players in all regional markets.
It has been a year since Ottawa relaxed foreign investment rules to allow for full foreign ownership of telecom carriers with a market share of 10 per cent or less. Vimpelcom's now-defunct bid for control, via a pair of deals that would have given it 99.3 per cent of Wind, was the first significant test of that policy.
Orascom's decision to back out followed a review process and discussions with the federal government. But in an unexpected twist, Orascom also stated that it "continues to be interested in consolidating its interest in Wind Mobile Canada and in working with the Government of Canada to achieve this goal."
Neither Orascom nor Industry Minister Christian Paradis provided details about potential stumbling blocks. Last week, The Globe and Mail reported that Vimpelcom's bid for control was being delayed over concerns about national security.
Specifically, Ottawa was worried about giving a Russian entity control of Wind's network infrastructure, which was built by Chinese telecom gear maker Huawei Technologies Co. Ltd., according to multiple sources.
Although VimpelCom is based in Amsterdam, its major shareholder is a firm controlled by Russian billionaire Mikhail Fridman. Huawei, which was founded by a former member of the People's Liberation Army, continues to fight allegations that its equipment enables espionage or security breaches. Both Wind and Huawei have said there have never been any incidents of spying, hacking or otherwise. Vimpelcom, meanwhile, has said it would "strongly refute" the suggestion that any business under its control would face increased risk of security breaches.
But the government was just as concerned about whom Vimpelcom wanted to sell Wind to, as it was with Vimpelcom itself, sources say. Mr. Paradis's and Public Safety Minister Vic Toews's offices had taken a close interest in the matter, trying to figure out how Vimpelcom could acquire Wind and then transfer it, while protecting Canada's national securities interests.
The government wanted to vet the ultimate buyer and, at some stage of the process, Vimpelcom balked at this request. Some within the government assumed during this back-and-forth that Vimpelcom hoped to transfer Wind to a major Canadian player but Mr. Paradis's early June announcement that signalled he was prepared to ban spectrum transfers to incumbents killed that option.
On Wednesday, Mr. Paradis refused to say whether he had national concerns about Vimpelcom's acquisition of Wind: "About this particular matter, I cannot comment."
Still, he insisted the future remains rosy for the federal government's plans to ensure there is a fourth wireless rival in every regional market.
While Ottawa was publicly tight-lipped about Vimpelcom's withdrawal Wednesday, a senior government official said privately that they were happy to learn the Russian concern had backed off its acquisition plans.
Wind has over 600,000 subscribers but it remains unclear whether Vimpelcom would agree to fund any additional spectrum purchases so that it could better compete.
"There is a great opportunity in Canada and I continue to be very, very enthusiastic about it," said Wind CEO Tony Lacavera, a Canadian who continues to maintain indirect voting control of Wind.
Still, the carrier's future remains up in the air. Verizon Communications Inc. has begun early-stage talks with Wind's investors to explore a potential takeover.
Mr. Lacavera, meanwhile, was said to be working with Orascom's former chief executive officer Naguib Sawiris on a separate bid to gain control of Wind.
Vimpelcom had begun a process to gain control of Wind last October with a proposal to convert Orascom's big block of non-voting shares into voting shares. Then in January, it announced a separate deal to top off its control by buying out Mr. Lacavera and transferring his shares of Wind to Orascom.
Dvai Ghose, an analyst with Canaccord Genuity, called Orascom's declaration of ongoing interest in consolidating Wind "thoroughly confusing."
"Given VimpelCom CEO Jo Lunder's recent comments at a broker conference in London that he wants a 'clean exit' from Canada, we can only assume that Orascom still wants to assume control of Wind Mobile Canada in order to sell the asset to a third party, including potentially Verizon who has said that they are looking at Canadian wireless, or Accelero, former Orascom CEO Naguib Sawiris' private equity firm," Mr. Ghose wrote in a research note to clients.