The agreement
With the April 10 decision affirming the block on the fourth bid offer, it seemed as if there was no end in sight to the dispute. But the situation quickly took a turn when, on April 14th, Orascom and France Telecom jointly announced the outline of an agreement.
“The agreement, which has been signed today and will be finalized over the coming weeks, will effectively bring to an end all disputes in relation to their joint investment in Mobinil,” the April 14th press release said. “The two groups will continue their partnership on a renewed basis going forward, implementing a revised shareholder agreement but with no change to the existing ownership structure or their shareholders’ voting rights.”
The finalized deal was signed on May 10th, according to a press release on France Telecom’s Web site. The release also noted that before the signing, “both companies had presented all the details of the terms of their agreement to the [Egyptian financial regulator], which in turn has welcomed the agreement and expressed its consent on it.”
The resolution will seemingly not result in a buyout offer for minority shares. Bloomberg reported that some European investment funds have gone to Egypt’s financial regulator, saying the agreement should have caused an offer to purchase minority shares.
Minority investor disappointment with the resolution would be understandable, as Mobinil stock was trading at press time at 175.50 Egyptian pounds per share – a sharp contrast to the approximately 273 pounds per share implied by the original arbitration decision.
Under the terms of the resolution, France Telecom agreed to pay Orascom $300 million, and Orascom received a put option regarding its shares in both the holding company and directly in ECMS. This option can only be exercised during certain time periods or under specific conditions.
Additionally, France Telecom will fully consolidate both its investment in the holding company and ECMS, according to a May 9th joint press release from the two companies.
In reaching this agreement, Orascom will get to retain control of its stakes, both direct and indirect, in ECMS – something Chouchri says Orascom wanted all along. “They don’t want to lose the contribution of Mobinil to OT,” she says.
While Orascom will maintain its stake in Mobinil, according to an April 27th press release by France Telecom, the company is not allowed to increase its stake in ECMS beyond the 20 percent that it already holds.
At the same time, France Telecom is getting what it wants out of the agreement, Choucri says. “Initially, FT wanted to [fully] consolidate Mobinil in their books, they wanted to maintain management, and they wanted a local partner, as well. So having OT still as a local partner and being able to fully consolidate Mobinil, they have reached what they wanted,” she says.
Additionally, the resolution calls for Mobinil to acquire Linkdotnet, an Internet service provider owned by Orascom. “The agreement also includes the integration of Linkdotnet – the leading Internet service provider in Egypt – into ECMS, allowing the company, subject to the approval of its corporate bodies, to extend broadband and corporate communications services to its 26 million customers,” the April 14th statement said.
Choucri says that a deal integrating Linkdotnet into Mobinil was put off as a result of the dispute.
“Mobinil needed to have a broadband company because all competitors now do. But [Orascom] didn’t want to sell it to a company that would be controlled by FT, so they preferred to wait until the settlement of the dispute,” she said.
Acquiring Linkdotnet should help Mobinil moving forward.
“I think this is a great move for Mobinil, because the broadband market is probably the fastest growing segment in the telecoms market in Egypt now,” Zaki says. “I think [offering broadband will be] positive for them in terms of growing their revenues, but also positive in terms of increasing the stickiness of their mobile subscribers and reducing churn.”
The April 14th release noted that there would be no change regarding shareholder voting rights or Mobinil’s ownership structure. However, Zaki says that the decision to allow France Telecom to fully consolidate Mobinil carries an implication regarding who is really in charge. “What it implies is that FT is in control now,” he says.

Disappointing results
Mobinil released less-than-impressive first quarter results in April, with net profit, for example, falling year-on-year.
In a note released April 29, HC Securities called the operational results “disappointing…”
“Results in 1Q10 indicate the highly competitive and slow subscriber growth reality of the Egyptian mobile market,” the note said.
Zaki says the dispute did slightly affect operations both last year and during the first quarter of this year, but he puts most of the blame for impacted operations on competition.
In addition to competition in the telecom sector, Zaki says that Mobinil is also facing regulatory difficulties. The regulator has made decisions that are “detrimental to Mobinil,” he says. “[Regulation] is the biggest threat I see now for Mobinil.”
Amid current difficulties, resolving the France Telecom-Orascom dispute may help the company moving ahead.
“[This resolution] means the company can focus again on its strategy and operations,” Zaki says. “[Going forward,] I think the operations will be affected more by what’s happening in the market, rather than what’s happening at the board level. Competition is heating up in Egypt.”

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