ORTE – extract from Reuters

By Alastair Sharp

CAIRO, May 6 (Reuters) - Algeria has thrown into doubt a planned sale of some or all of Egypt's Orascom Telecom (ORTE.CA) to South Africa's MTN (MTNJ.J) by opposing a transaction involving Djezzy, Orascom's Algerian unit and the crown jewel in the deal.

Djezzy is the focus of a tax bill dispute and a personal spat between Algiers and the group of firms controlled by the family of Naguib Sawiris, who heads Orascom Telecom and whose brothers run other Orascom companies. [ID:nLDE61H1UG]

Djezzy gave Orascom more than a third of its 2009 revenue.

Algeria's threats to withdraw Djezzy's licence, use its right of first refusal in a sale or set terms of an acquisition have halted the deal and pushed down Orascom's shares. Below are a range of possible outcomes:

ORASCOM SELLS DJEZZY MAJORITY TO GOVT, REMAINDER TO MTN

This is possible, as long as Algeria pays a price acceptable to both firms and MTN accepts a minority stake with management control. New Algerian laws seek majority local ownership in all firms operating in the North African country if there is a change of ownership.

However Algeria is under no pressure to offer a market price.

To succeed, this option will require direct negotiations between Sawiris and Algerian ministers. Both have expressed a willingness to talk but neither appear to set a date.

Djezzy's fair value is between $5.5 billion and $7 billion, analysts say, so assuming Orascom and MTN broadly agree on that range, Algeria would need to offer at least $2.8 billion for a 51 percent stake.

A lower offer would devalue MTN's stake or push it to seek a discount too, and Orascom may deem the cheapened sale unworthy.

ALGERIA FORCES DJEZZY SALE TO STATE OR STATE-BACKED ENTITIES

Statements from Algiers make this seem increasingly like the outcome the government seekseks.

While Orascom can still, theoretically, decline to sell at all if the price is too low, the operating environment could deteriorate further, making even a fire sale preferable to a slow drain of capital without a chance to repatriate profit.

Already, an Algerian newspaper has suggested Orascom will face further tax bills exceeding $250 million for 2008 and 2009.

Possible buyers include state energy firm Sonatrach, which has a large purse and existing communications infrastructure to reach its remote assets, and state-owned Mobilis, the smaller of Djezzy's two competitors.

Some analysts suggest Cevitas, a private Algerian firm that holds a 3 percent stake in Djezzy, could be encouraged by the Algerian authorities to increase its stake, but a state-owned entity would still be the majority shareholder.

However although there is nothing to stop a nationalisation by default, even a country with an increasingly nationalistic economic policy might be wary of the damage such a move would have on foreign investor sentiment.

MTN BUYS ALL ORASCOM, SELLS BACK PARTS

Sources have suggested this was the original deal, before Algeria stepped in, and there is a chance it could still proceed if Algeria focuses on claiming a 20 percent capital gains tax.

One banker with knowledge of the original deal but not directly involved said the firms had agreed to a full sale of Orascom -- at between $9 and and $10.20 per Orascom GDR (ORTEq.L) to MTN.

Weather Investments, Orascom's parent and which is owned by Sawiris, would then pay $2 billion to $3 billion to buy back units in Pakistan, Bangladesh, North Korea and Canada, plus stakes in a Tunisian operator and Egypt's Mobinil (EMOB.CA).

To complete the deal Weather would make an offer to buy out Orascom's minority shareholders, who now hold 49 percent of Orascom, at the same price -- a payout worth $4.6 billion to $5.2 billion, the banker said. This would effectively take Orascom private and result in delisting.

Once completed, the deal could land Weather as much as $3.5 billion -- which could be used to pay down some of its debts -- and would leave Sawiris with most of Orascom's assets, excluding Djezzy and some African operations.

A second source also said such a deal structure was discussed, but did not put price tags on any part of the deal.

However a cash windfall may not be Algeria's highest priority. Negotiations have been fraught at the best of times in a complex deal. MTN could also decide Algeria is simply too risky. (Editing by David Cowell)