Etisalat still working to complete $12 billion Zain deal

Reuters, Monday 17 Jan 2011

Despite missing the due diligence deadline, Etisalat still working to complete deal to acquire a stake in Zain

Kharafi Group is one of Zain`s major shareholders
Kharafi Group is one of Zain`s major shareholders. (Photo: Reuters)

UAE telecoms firm Etisalat is still working to complete a deal to buy a stake in Zain for $12 billion despite missing a January 15 due diligence deadline and the emergence of a potential rival bid.

Etisalat said on Sunday it had not made sufficient progress toward finalising the deal by the deadline due to "unforeseen delays" in Zain providing access to relevant information.

"The parties do continue to work toward the announcement of a definitive transaction," Etisalat said in a statement.

Shares in Etisalat closed down 0.9 per cent on the Abu Dhabi stock exchange, while Zain ended flat, recovering from an earlier intraday one-month low.

Etisalat offered to buy a 46 per cent stake of Zain for 1.7 dinars ($6) a share last September. The offer was made to one of Zain's major shareholders, Kuwaiti family conglomerate Kharafi Group.

Etisalat, which lost its home monopoly in 2007 with the arrival of rival Du, launched its bid to expand into high-growth Middle East markets such as Iraq.

The telecoms firm, 60 per cent owned by the government, did not announce a new deadline for due diligence.


In October, Kharafi Group said it had enough approvals from shareholders to tender to Etisalat's bid, even though the deal is still dependent on the sale of Zain's assets in Saudi Arabia, for anti-trust reasons.

A Kharafi unit, which is working on behalf of its parent firm to gather Zain shares to tender to the offer, said on Sunday talks between deal parties continued.

Etisalat in November had set a January 15 deadline to sign definitive transaction documents and complete due diligence.

"The three months deadline to sign a definitive agreement was ambitious in the first place, given the size of Zain and that it operates in multiple jurisdictions," said Irfan Ellam, telecoms analyst at Al Mal Capital. "The fact that due diligence has been extended is not too surprising."

The deal has been dogged by other hurdles.

Al Fawares Holding, a Kuwait-based Zain shareholder unhappy with the deal process and a condition that Zain sell its stake in Saudi Zain, launched a court case to halt the due diligence which was dismissed by a Kuwait court last month.

Both Etisalat and Zain have operations in Saudi Arabia and regulatory requirements mean one group must quit its stake.

Last week, CNBC Arabiya reported that Turkey's Cukurova Holding is in talks to buy 29.9 per cent of Zain for $7.

That deal is being spurred by a Zain board member who is also a brother of Al Fawares' head.

"Not setting a deadline could be a tactic that both parties are using so that Zain's shareholders opposing the deal would not be able to have last minute surprises for the Kharafis and Etisalat like what happened last week," said Naser al-Nafisi, general manager for Al Joman Center for Economic Consultancy in Kuwait, referring to the Cukurova news.

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