Industry Minister James Moore recently announced that he had given approval under the Investment Canada Act to the acquisition of majority control of WIND Mobile, a Canadian wireless telecommunications company, from WIND Mobile’s majority shareholder VimpelCom Ltd., a Russian-Dutch company, by AAL Acquisitions Corporation.

AAL Acquisitions is an investment consortium reportedly including WIND Mobile founder Tony Lacavera, private equity firm West Face Capital and California-based hedge fund Tennenbaum Capital Partners.  In order to obtain the Minister’s approval, AAL Acquisitions was required to demonstrate to the Minister’s satisfaction that its acquisition of WIND Mobile would be of “net benefit to Canada” and also had to allay any concerns that Canadian security agencies may have had that the proposed investment might have “national security” implications.

From a strictly economic perspective, approval of the transaction had been expected since increasing competition in the Canadian wireless communications market has been a priority for the current Harper government.  The Canadian government’s likely hope is that WIND Mobile will become Canada’s fourth national mobile telephone carrier.  WIND Mobile has about 750,000 wireless customers concentrated in Ontario, Alberta and British Columbia.

In giving his approval, the Minister stated that he had concluded that AAL Acquisitions’ ownership of WIND Mobile would contribute to a “more robust and competitive wireless industry in Canada” and noted that AAL Acquisitions had given a number of undertakings including to maintain WIND Mobile’s head office in Canada, to ensure that a majority of WIND Mobile’s head office employees are Canadian; to have WIND Mobile remain incorporated under Canadian law, to provide Canadian-based suppliers with a fair and equitable opportunity to compete for WIND Mobile’s business and to invest significant capital with the aim of purchasing spectrum and growing WIND Mobile’s business across Canada.

Earlier in 2013, WIND Mobiles’ selling shareholder, VimpelCom Ltd., had withdrawn a bid to acquire control of WIND Mobile.  Although no reasons was given for the withdrawal, it was generally surmised that the Canadian government was concerned with the national security implications of having a company with reportedly some indirect Russian ownership interests control WIND Mobile and its telecommunications infrastructure in Canada.

As with other transactions involving what are perceived to be Canadian “national security” issues, the Canadian government has been reluctant to publicly address the basis of its concerns with the VimpelCom Ltd. bid for WIND Mobile.  A bid in 2013 for Alltstream, another Canadian communications company, by Accelero Capital was rejected by federal Industry Minister James Moore for what appeared to be unspecified “national security” concerns arising from the fact that Allstream operates a national fibre optic network that provides critical telecommunications services to businesses and governments, including the Government of Canada.

The take-away from this most recent Ministerial approval is that transactions involving Canadian telecommunications businesses can obtain Canadian government clearance if the right buyer is involved.   However, the identity of proposed buyer and of the persons with whom such buyer has business relationships will continue to be of importance to the Canadian government in assessing whether the acquisition of a Canada business involved a sensitive industry sector or owning critical assets will be cleared under the Investment Canada Act as “national security” will continue to be a significant factor that must be addressed in the takeover approval process.  Additionally, while not generally as high profile as takeover bids, the establishment of new businesses in Canada by non-Canadians may also attract scrutiny under the Investment Canada Act as these investments are also subject to a notification requirement and subject to review if “national security” appears to be an issue.

For the foreseeable future, it appears that “national security” issues will remain top of mind when any foreign bid emerges for a Canadian national champion such as a company involved in the telecommunications sector in Canada.