After a protracted struggle, the fierce, take-no-prisoners battle for control of the Egyptian Company for Mobile Services, or Mobinil, has finally come to a close.
The drawn out contest over Mobinil, Egypt’s largest telecom company in terms of subscribers, was played out between its two major shareholders: Egypt’s Orascom Telecom and France Telecom, which own about 35 and 36 percent of the company, respectively. After years of fighting, the two firms announced in April that they have settled their differences.
The resolution, which will include a $300 million payment from France Telecom to Orascom, may not have come in time to prevent a negative impact on Mobinil’s performance. However, it seems likely to put the company on a stronger footing moving forward. In the current competitive environment, this should be a boon to Mobinil – which posted less-than-stellar first quarter results in April.

Looking back
The conflict between Orascom and France Telecom goes back a number of years. The dispute was taken to international arbitration in 2007. It was a disagreement over strategy regarding Mobinil that brought the two companies to arbitration to begin with, says NematAllah Choucri, a telecom analyst at Egypt-based HC Securities & Investment. “They had different views. France Telecom wanted more dividends at the time,” she says. At the same time, Orascom wanted to invest substantially in Mobinil to help the company grow.
Osman Zaki, a senior analyst at London-based investment management firm MENA Capital, says that one can’t be certain what exactly led to the decision to seek arbitration, but he says that disagreements between the companies became pronounced when the U.A.E.’s Etisalat won a license in 2006 to enter the Egyptian market as the third mobile operator. “I think this is when we started to see some kind of a split over the future direction of the strategy of Mobinil,” Zaki says. “I think FT wanted to stay focused more on profitability and cash flow. OT wanted to pre-empt the entry of Etisalat and wanted to be more aggressive to gain market share.”
The arbitration, which took place in the International Chamber of Commerce’s International Court of Arbitration, concluded in April 2009. The decision ordered Orascom to sell its 28.75 percent stake in the holding company that owns 51 percent of ECMS to France Telecom at a price equal to about 273 Egyptian pounds ($49) per share of ECMS.
Orascom’s stake in the holding company, which is called Mobinil for Telecommunications, is equivalent to nearly 15 percent of ECMS. The remaining 71.25 percent of the holding company is owned by France Telecom and constitutes the French company’s approximately 36 percent ownership stake in the mobile provider.
To make matters even more complex, in addition to its shares in the holding company, Orascom owns a 20 percent direct stake in ECMS. The remainder of ECMS shares – 29 percent of the company – are in free float.
But far from settling matters, the arbitration decision merely precipitated more disagreement, sparking further struggle over the company within Egypt.
Choucri says that when the ruling was made public, France Telecom was not interested in acquiring Orascom’s 20 percent stake or the free floating shares – only Orascom’s share of the holding company. “They were trying to just execute this portion,” she says.
In addition to requiring France Telecom to make a tender offer for the other shares of ECMS, Egypt’s financial regulator stipulated that the company had to offer the equivalent price for ECMS shares as determined by the arbitration for Orascom’s share of the holding company, or alternatively provide justification for a reduced price.
The French company made four separate offers for the remaining stakes in ECMS, each coming in below the 273 Egyptian pounds per share. The regulator rejected the first three bids.
“I thought the regulator in the first three offers was spot on in rejecting them,” Zaki says, adding that the decisions were in accordance with existing law.
The regulator then accepted the fourth bid – for 245 Egyptian pounds per share – in December. But this move was quickly overturned by an Egyptian court, which blocked approval in January shortly before the sale was to be conducted. The court reaffirmed this decision on April 10th.

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