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UAE’s Etisalat Walks Away From $12 Bln Zain Deal

Etisalat cites due diligence, unrest, divided Zain board; UAE firm would have expanded into key Iraq market; Impact unclear on bidders for Zain Saudi assets.

March 19, 2011 3:01 by



UAE telecom firm Etisalat scrapped on Saturday its $12 billion offer to buy a controlling stake in Kuwaiti rival Zain, citing Zain’s divided board, extended due diligence and regional unrest.

The Gulf’s largest telecom firm offered last year to buy a 46-percent stake in Zain, worth about $12 billion, for 1.7 dinars a share from a consortium led by major Zain shareholder Kharafi Group.

The Zain deal would have made Etisalat the regional heavyweight, but it had been plagued by delays and disputes. “Etisalat has to announce unfortunately that negotiations … towards acquiring a controlling stake in Zain have ended,” the Abu Dhabi-based firm said in a statement.

“In light of the broad due diligence carried out by Etisalat … and following the political unrest in the region and due to a lack of consensus in the board (shareholders) of Zain, … the conditional offer is not valid anymore.”

Etisalat’s attempt to take control of Zain, whose operations in key growing Middle East markets such as Iraq make it an attractive target, had been dealt several setbacks.

Divisions within Zain’s board — seen as hostile to the Kharafi Group which irritated other shareholders by cutting them out of the stake sale and accruing all brokerage fees on the deal — led to internal squabbling.

Meanwhile, the complicated deal structure was another hurdle to the deal which Etisalat, facing stiff competition at home from rival du, badly wanted to expand its footprint in the Middle East.

As recently as March 2, Etisalat had said it was still interested in taking control of Zain after it had missed a second deadline to complete due diligence.

On Saturday, Etisalat also cited new Kuwaiti capital markets laws related to takeovers which require anyone who buys more than 30 percent of a listed Kuwaiti firm to bid for the remaining outstanding shares within 30 days effective in March.

The bylaw does not apply to deals agreed previously and would not affect the Etisalat deal, a Kuwaiti Capital Markets Authority official said at the time.

SAUDI OPS SALE IN QUESTION

The end of the Etisalat/Zain deal throws into doubt a side arrangement which saw Bahrain Telecommunications  and Saudi billionaire Prince Alwaleed bin Talal’s Kingdom Holding  bid $950 million for Zain’s Saudi assets last week.

As part of its Etisalat offer, Zain was required to sell its stake in Zain Saudi  because Etisalat also operates in the kingdom through its affiliate Mobily.

But Batelco’s chief executive said the offer would proceed despite the end of the Etisalat/Zain plan.

“We were not buying Zain, we were buying a stake in Zain KSA and we are still interested in that,” Batelco CEO Peter Kaliaropoulos told Reuters from Riyadh. “Now the question is will Zain still sell it. But we will proceed.”

A Zain spokesman said the Kuwaiti firm’s board of directors would need to decide whether the sale goes ahead or not.

By Amran Abocar

(Editing by Firouz Sedarat)



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