France Telecom ordered to make ECMS buyout bid

Egypt's stock market regulator has ordered France Telecom to make a full buyout bid for the Egyptian Company for Mobile Services (ECMS), which operates Mobinil, the country's largest mobile network. The decision means all three of Egypt's mobile networks may soon be majority-owned by foreign companies, a first for the region. Vodafone, the country's second-largest operator, is controlled by the Vodafone Group, based in the UK, while Etisalat Misr, which launched its services in mid-2007, is majority-owned by Etisalat.

The Egyptian telecommunications market is the largest and fastest-growing in the Arab world, with more than 40 million subscribers. Mobile use has more than tripled since 2006, with almost one million subscribers joining the country's three networks each month. In July 2006, Etisalat paid US$2.9 billion (Dh10.65bn) to acquire Egypt's third telecommunications licence. The company has since invested billions of dirhams establishing its operations in the Middle East's most populous country and has attracted about three million customers. The unit contributes almost half of all the revenues from Etisalat's international subsidiaries.

France Telecom owns Mobinil in a joint venture with Orascom Telecom, Egypt's largest publicly traded company. But the two businesses have been in a long-running dispute over the ownership agreement, with each party offering to buy out the other. The two companies submitted their cases to international arbitration in 2007. At the heart of the dispute is the shared ownership of Mobinil Telecommunications, a holding company with a 51 per cent stake in ECMS.

Ownership of the holding company is split about 70:30 between France Telecom and Orascom, with the Egyptian company owning a further 20 per cent stake directly in ECMS. The arbitration court last week declared that Orascom must sell its interest in Mobinil Telecommunications to France Telecom, and set a price for the sale that valued ECMS shares at an 80 per cent premium to market prices. Orascom has since maintained that France Telecom must make a similar offer for all shares in ECMS, and released a statement saying such a sale would net the company about US$1.7bn. ECMS shares rose by up to 40 per cent following the announcement, and are trading at prices almost 45 per cent above their six-month average.

But France Telecom disagreed, insisting the arbitration decision related only to Orascom's interests in the holding company, and that it had no obligation to make an offer at the same price for all ECMS shares. It went on to offer a full buyout of ECMS shares, but at a lower premium of about 30 per cent. This offer was rejected by Egypt's Capital Market Authority (CMA), which said the offer was unfair to minority shareholders.

Yesterday, the CMA was quoted by Egypt's state news agency as saying the company must offer to buy all ECMS shares under the same conditions laid out by the arbitration ruling. Such a requirement may bring France Telecom back to the negotiating table with Orascom, which has maintained throughout the dispute that it would like to retain its interest in ECMS and reach a new agreement. "A favourable outcome for me is continuing business as usual and forgetting about the arbitration," Naguib Sawiris, the chairman of Orascom, told Reuters. "We have no desire to leave, but they need to apologise."

tgara@thenational.ae