MTS surprised, disappointed deal with foreign buyer nixed

MTS Allstream CAOPaul Beauregard said the company had no idea Ottawa would reject a planned takeover by Egyptian companyAccelero.

Beauregardsaid when the sale was announced in May, there was no indication it would be rejected.

"I think everyone's very disappointed and surprised," he said Tuesday. "It's fair to say that people didn't anticipate this coming. There weren't the warning signs. In fact, throughout this process, we had been receiving very positive feedback from Industry Canada."

Beauregard said early in the process, Ottawa asked about how the company would ensure security.

"The governments do ask for undertakings to make sure that security protocols are respected. And we had provided, in collaboration withAccelero, a series of undertakings that has received positive feedback from Industry Canada."

He said he learned Monday afternoon of Industry Canada's decision.

No flags raised during approval process

MTS Allstream CEO Pierre Blouin said there was no indication by the government of concern over Accelero or its principal or its founder Naguib Sawiris during the five-month approval process by Investment Canada.

We started this process a long time ago when the government lifted some restrictions for foreign investment in small telecom providers in Canada, Blouin said in an interview with CBCs Lang & OLeary Exchange.

We started that process, informed the government and we were sure we were in line with that new policy trying to draw foreign investment to Canada.

Blouin said Acceleros earlier investment in Wind seemed to indicate it would be permitted to invest in the Canadian market.

We were very open about everything and now to end up with a decision by the minister yesterday to reject the transaction over national security concerns with no ability to discuss it or address them, he said.

He said the government is not sending the right signal if foreign investment is wanted in the telecom sector.

The policy will need to be clarified as foreign investors will hesitate to come to Canada, he said.

In the meantime, Blouin said he plans to refocus on rebuilding the business.

Wind Mobile chairman Tony Lacaverasaid the reaction of international investors is going to be "Let's take our money elsewhere."

He was puzzled why Accelerowould be rejected now when it invested so heavily in Canada when Wind was a startup.

"We spent two years in '08 and '09 to prove the legitimacy of this group, and they spent $1 billion in this country to get Wind going and bring lower costs to Canadians in wireless," Lacavera said.

"To now reject the very same group on the basis of national security concerns is deeply concerning to me as an entrepreneur trying to raise capital abroad."

MTS shares dipped by almost eight per cent on Tuesday after news broke thatthe deal had been nixed by Industry Canada.

The stock was down by $2.43 and sat at $29.93 on the Toronto Stock Exchange in the morning.

MTS too important to sell, expert says

One Winnipeg security expert said he wasn't surprised by the decision.

Peter St. John ofthe faculty of political studies at the University of Manitoba said the telecommunications company is as important for Manitoba as potash isto Saskatchewan.

I think this is an essential service forManitobans, just as potash is really important to Saskatchewan.- Peter St. John, University of Manitoba

"I think this is an essential service for Manitobans, just as potash is really important to Saskatchewan," he said. "And I would think for the same reasons, the prime minister might not allow a [deal] like that."

St. John said the Conservative government sent a message to business when itrejected the sale of Saskatchewan's Potash Corp to an Australian company in 2010.

St. John saidthe possibility of a foreign country intercepting Canadian government messages viaMTS technology is a real concern, "Especially from an unproved source, like Egypt." Another factor, is the instability of Egypt.

But CBC business reporter David Blair said the rejection comes as the federal government is trying to increase competition in the cellphone industry.

"It just adds another level of complexity and even confusion for attracting foreign investment to this sector," Blair said.

Accelero is no stranger to Canada, he pointed out.

"This, by the way, is the same company that backed Wind Mobile in its entry into the cellphone business in Canada,"he said. "This company is backed by people who already have a history in the Canadian market."