CMA rejects FT's offer for Mobinil

Theodore May
5 Min Read

CAIRO: Egypt’s market regulator rejected Wednesday France Telecom’s (FT) bid to buy out Orascom Telecom’s (OT) stake in mobile telecom giant Mobinil.

In a statement, France Telecom said it “regrets this decision, which, above all, penalizes the minority shareholders of [Mobinil]. In these circumstances, France Telecom is no longer able to pursue its proposed tender offer for [Mobinil] shares.

FT on May 19 submitted a tender offer to Mobinil shareholders at LE 237 per share.

A source close to the matter later told Reuters in Paris that FT may consider exiting Egypt following the ruling. A company executive said on Tuesday the firm was ready to fight a legal battle to resolve the row if necessary.

FT also said it will use “all national and international legal channels to challenge the market authorities rulings and re-establish its rights, according to the statement, arguing that the arbitration ruling was not challenged within the required legal deadlines and so remains executable in its form and substance.

The statement also said that OT missed its payment deadline and demanded it pay a fine of “$50,000 per day until the transfer of the securities.

Following the ruling, the Capital Markets Authority (CMA) allowed shares of both OT and Mobinil to be traded again, after suspending them on May 19 while awaiting a resolution to the conflict.

Once shares resumed trading yesterday, they both took a hit, trading lower as a result of investors who thought the deal might go through.

The conflict originally benefited OT, as investors saw that any resolution of the conflict would produce positive numbers for OT. As the dispute continued, though, investors have grown wary, dumping shares of OT and Mobinil in adopting a wait-and-see attitude.

This ruling, and subsequent hit in share price, comes on the heels of a weak earnings report on Tuesday in which OT numbers reflected a serious drop in business. The company reported a 66 percent decline in net profit for the first quarter of 2009, as compared to the same stretch a year earlier.

The first quarter of 2009 confirmed our expectation that economic growth would slow further leading to a more challenging operating environment, OT Chairman Naguib Sawiris said, according to Reuters.

Its operations in Algeria and Pakistan had performed more weakly than expected.

This hit in profits comes at a time in which OT risks losing a significant portion of its annual revenue if the transaction with FT goes through.

Though the CMA helped OT in that regard, the uncertainty raised by the ruling has been taking its toll on the stock.

The conflict began several months ago when an international arbitration court ruled that FT buy all of Mobinil’s shares.

OT, to great effect on the stock market, balked and engaged in a media-based tit-for-tat with FT. OT also demanded FT pay a price per share significantly higher than Mobinil was actually trading.

Orascom executives also said that the arbitration meant that FT would need to buy both the Mobinil holding company and Mobinil itself. This dispute was a significant cause of the impasse.

The CMA said in a statement that it had rejected the obligatory purchase offer as it violated the principle of giving equal opportunity.

The statement put out by the CMA also addressed a number of other smaller issues, including disputes over undistributed profits and a trademark conflict, in explaining why it rejected FT’s bid.

Analysts indicate that traders are still bullish about the idea of an OT-FT deal. They believe that if FT succeeds in buying out Mobinil, the cash on hand for OT will be a major boost for the company.

If the deal does go through, many will be waiting and watching to see how OT decides to use the cash.

In the meantime, investors continue to keep a wary eye on this seemingly never-ending dispute. And CMA’s decision on Wednesday insures that the saga will live on, at least to write another chapter or two.

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