Etisalat Could Lose Zain Bid Despite Brighter Prospects

In a surprise, 11th-hour move, Turkey's Çukurova Holdings has tabled an offer to buy 29.9% of Zain Group for US$7.89bn. While the offer is smaller in scale than the US$12bn offered last year by UAE-based Etisalat for 46% of Zain, it does mean that foreign investors would have less influence over the Kuwait-based regional mobile operator, which might be more palatable to the other shareholders in the company.
Emirates Telecommunications Corp. will probably miss the deadline for a final accord on its $12 billion offer for control of Zain because it doesn’t have adequate commitments from shareholders of the Kuwaiti company, five people involved in the talks said. Etisalat may extend the offer deadline, although the company’s bid could unravel altogether if it doesn’t get enough support from Zain shareholders or Zain fails to find a buyer for its stake in a Saudi Arabian unit, one of the people said. If the deal collapses, it would be second time Zain shareholders will have failed to sell majority control in the company, which operates mobile-phone services in Middle Eastern markets including Kuwait and Iraq.
The deal with Zain hinges on Etisalat gaining majority shareholder approval by January 15 as well as a commitment to divest overlapping operations in Saudi Arabia. While the Kharafi family - which owns stakes amounting to around 25% of Zain's share capital - is backing the Etisalat offer, minority shareholder Al-Fawares Holding has been vocal in its opposition and could yet derail the transaction. Indeed, it is Al-Fawares - through its investment vehicle National Investments Co (NIC) - that has opened negotiations with Çukurova. NIC owns 4.5% of Zain's shares.
Analysts believe other companies including France Telecom, South Africa's MTN Group and Saudi Telecom Company (STC) could be eyeing a stake in Zain before tomorrow's deadline. Martin Mabbutt, a telecoms analyst with Nomura Securities, said: "If you want a larger presence in a region, opportunities are quite difficult to find. "Zain is one of those assets where the shareholders have decided to get out of telecoms and it's one of the assets there's demand for." France Telecom would be the most likely operator to make an offer for Zain.
The company has a strong presence in Jordan and is in negotiations to buy Korek Telecom in Iraq as part of a wider strategy to double revenue from emerging markets.