Bad call

Orascom: Egypt appears to be playing fast and loose with its telecom industry. A preliminary court decision to block France Telecom's offer to buy out the minority shares of the country's largest mobile operator brings a long-running fight with the French operator's locally-based partner Orascom Telecom to a new low. Egypt appears to be protecting Orascom, which is chaired by Naguib Sawiris, the powerful tycoon. Minority shareholders are the big losers.

France Telecom never really wanted full control of Egyptian Company for Mobile Services (ECMS). The situation came about in 2007 when Orascom took a dispute about how to run the business to an international arbitration court. Orascom hoped the result would give it control of Mobinil, the holding company through which the partners control the quoted ECMS. But the arbitrator decided, instead, that France Telecom should buy out the Egyptian group's shares.

Orascom then appealed to Egyptian market authorities. It ruled that since France Telecom was taking control of Mobinil, it must first make an offer for the rest of ECMS at the same premium valuation. Given that Orascom also owns a direct stake in ECMS, this at least gave Sawiris an attractive exit. France Telecom, for its own part, appealed. It argued that it wasn't reasonable to pay the same price for ECMS -- particularly as the Mobinil brand is held by the holding company. The market authorities then agreed to it offering $2.2 billion for the minorities — a 10 per cent discount.

Orascom, though, didn't leave it there. A local court has now blocked the bid for ECMS, in part because it thinks the price is too low. This may suit Sawiris. It means the parallel buyout of his Mobinil stake is also on hold. But, the ruling penalises ECMS's real minorities. While they'd presumably love an even higher offer, the latest France Telecom bid values their shares higher than they've traded in the last two years and at a 64 percent premium to their value at the time of the original arbitration ruling. The Egyptian court has a chance to change its mind when it reconvenes next month. Otherwise, it will have made a bad call.