Attempts by France Telecom to take over Orascom Telecom Holding's shares in MobiNil turned sour this week, reports Niveen Wahish The main shareholders of MobiNil, Egypt's first private sector mobile phone service provider, found themselves on opposite sides of the battle line this week when the Court of Arbitration of the International Chamber of Commerce (ICC) ruled that Orascom Telecom must transfer all its shares in MobiNil to France Telecom (FT). MobiNil owns 51 per cent of the Egyptian Company for Mobile Services (ECMS), the actual provider of the mobile phone service offered under the brand name MobiNil. The court decision means that OT will have to sell its 28.75 per cent holding in MobiNil to FT. In turn this will result in FT becoming the majority shareholder in ECMS after having held only a 36 per cent stake. So far, so good. But in a televised interview OT Chairman Naguib Sawiris said his company had been legally advised that since the transfer of shares changes shareholders' structure, making FT the majority owner of ECMS, FT is obliged to make a tender offer for any remaining ECMS shares. These include 20 per cent owned by OT and 29 per cent in free float. FT has in fact made an offer that was rejected by the Egyptian Capital Market Authority (CMA) on the grounds that it was unfair to shareholders. It offered to buy OT's 20 per cent holding in ECMS at LE273.26 per share, the same price it was paying for OT's share in MobiNil. But it offered only LE186 per share for the 29 per cent free float. In a statement CMA said that it had rejected FT's offer "because it conflicts with the principles of equality [among shareholders]." FT's Mergers and Acquisitions Director Bernard Izerable told Al-Ahram Weekly in a telephone interview on Tuesday night that FT was not obliged to tender an offer for the remaining shares in ECMS but had done so to give an opportunity for shareholders to exit the company if they so wished. He also said that the CMA decision was "unfortunate for public shareholders" and insisted FT would not be making a new offer because it believes the price already offered was over the market price. On Sunday, before the squabble became public, ECMS shares were trading at LE150. By noon Wednesday they had climbed 18 per cent to LE212 per share while OT shares were down 2.2 per cent at LE30. Wael Ziyada, head of research at EFG-Hermes, says that under the Capital Markets Law FT must place a tender offer otherwise the CMA will not approve the share transfer. What happens then, though, is anyone's guess. According to Ziyada the parties can either negotiate a solution or go back to court. In either event there could be several possible scenarios. ICC Director of Communications Mary Kelly told the Weekly that "due to confidentiality rules of the ICC International Court of Arbitration, ICC can not comment on any specific cases." In the meantime, FT is waiting for OT to deliver its shares by 10 April. Izerable said that should there be any delay OT will have to pay additional compensation set at $50,000 per day, according to a CMA statement. If Izerable sounds confident, so does Sawiris. He argues that FT needs OT's consent to extricate itself from the situation, and has indicated that the company is willing to take a conciliatory approach should FT do the same. Izerable, however, does not see a friendly discussion at this point. He stresses that after the court made its decision both companies were negotiating a restructuring of their partnership. It was OT, he says, that decided to unilaterally terminate discussions on Sunday. FT is "comfortable" with OT continuing to hold 20 per cent of ECMS shares, Izerable continued, and is interested in keeping ECMS listed for the benefit of the Egyptian market. The argument betrays the extent to which both parties want to hang onto the company. Indeed, Sawiris acknowledges in his television interview that he would be unhappy to leave the company he established. "The company has a sentimental value," says Ziyada. "It is also OT's domicile operation. It is where they started and it is a profitable operator." MobiNil represents almost a quarter of OT's 78 million global subscribers and last year accounted for 19 per cent of OT's total GSM revenues of $4.8 billion. But MobiNil is a major cash cow for both partners. Izerable told the Weekly that FT "would not have made the offer if we did not think it was worth doing it". In a statement issued following the court ruling FT said acquiring OT shares in MobiNil would enable it "to consolidate ECMS's entire financial results into its books, giving it additional revenue of over 360 million euros and 165 million euros of earnings before interest, tax, depreciation and amortisation." FT posted 53.5 billion euros in revenues in 2008. At LE273.26 per share OT would be getting "a very good price" says Ziyada. OT itself says that "at this price we estimate that the sale of OTH's interest in the MobiNil companies would amount to approximately $1.7 billion. The proceeds would be used to enhance/support OTH's future expansion plans." Ironically, it was OT that originally went to court in an attempt to buy FT's shares. The move was based on a shareholders' agreement which dictates that when a dispute arises between partners they have the right to revert to arbitration and initiate deadlock procedures under which one party buys the other out. The seeds of the squabble date to 2007, says Sawiris, when differences emerged over how much new investment MobiNil needed ahead of the planned entry of a third mobile operator. Since the arbitration process started four rounds of bidding had taken place. FT's last bid of LE273.26 per share was the highest.
