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Same-Day Analysis

Etisalat's Acquisition of Zain Stake Cancelled

Published: 02 March 2011
Zain's largest shareholder has cancelled plans to sell its majority stake in Zain to Etisalat, attributing the failure of Etisalat to complete due diligence by the 28 February deadline.

IHS Global Insight Perspective



The acquisition would have been one of the largest telecoms deals in the MENA region, giving Etisalat access to another seven MENA markets.


Full details are yet to emerge; however, the deal had been plagued with difficulties from the start, especially as there were shareholder obstructions from the early stages.


With very few expansion opportunities left for both operators in the MENA region, both players may look to Asia for new opportunities.

Kuwait's National Investment Company (NIC), which is part of the Kharafi Group—a major Zain shareholder—has announced that the deal for Etisalat to acquire a 46% stake in Zain for USD12 billion has been scrapped. The collapse of the deal came about because Etisalat failed to complete due diligence of Zain by the deadline of 28 February, Dow Jones reports. The announcement on the Kuwaiti stock exchange website comes just over a week after Zain rejected all three bids for its Saudi Arabian mobile operations which it needed to sell to overcome one of the hurdles for the deal to go through (see Saudi Arabia: 21 February 2011: Zain Rejects All Three Bids on Saudi Arabian Mobile Assets).

Outlook and Implications

The termination of the deal comes as no surprise as the deal was plagued with difficulties.

  • Major Difficulties for Deal Completion: Initially one of the minority shareholders in Zain, Al Fawares, claimed that it was unfair that Etisalat was able to go ahead with due diligence without a placing a formal offer. In November 2010, the minority shareholder, which owns just under 5% of Zain, tried to take the case to court. However, a month later the case was thrown out (see Kuwait: 24 December 2010: Kuwaiti Court Dismisses Zain's Minority-Shareholder Lawsuit over Etisalat Stake Purchase). Etisalat also faced financing pressure, the banks financing the deal required that Etisalat acquire a majority stake in Zain. This would have been achieved, as 10% of Zain is owned by the treasury and has no voting rights, giving Etisalat 51%, effectively a controlling stake in the operator (see Middle East and North Africa: 22 December 2010: Etisalat Requires Majority Zain Stake for Funding Approval). Funding was recently approved and looked to be arranged for completion of the deal (see Middle East and North Africa: 25 February 2011: Etisalat Expects Financing Arrangement on Zain Deal to be Completed by End of Month). Etisalat's main concern, however, was the competition it has with Zain in Saudi Arabia in the mobile sector. In Saudi Arabia, Zain competes with Etisalat's brand Mobily; Zain had to sell off these operations but initially struggled to find buyers. Within the last couple of months, it received offers from Batelco, Kingdom Holding and Al Riyadh Group, though in eventually wound up rejecting all three offers, stating that some had expired.

  • Zain Streamlining: More recently, Zain has stated that it is looking to cut around 40% of its staff across the group. Whilst this percentage is extremely high, the operator has become solely a MENA focused operator, with operations in 2 North African markets, 5 Middle Eastern markets, as well as a management contract in Lebanon. Since selling of its sub-Sahran assets to Bharti Airtel, it can now focus on more mature markets which require less attention compared to emerging markets in Africa.

  • Other Options: As problems of other elements of the deal emerged, Zain stated it would look for other opportunities in emerging markets if the Etisalat deal fell through. The current problem it is faced with is that there are very few opportunities in the MENA region for new licence acquisition. Lebanon and Syria are set to offer new mobile licences, but these countries have been slow to act in the past and have proved problematic for other operators.
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