IHS Global Insight Perspective | |
Significance | Çukurova is in talks to acquire Al-Fawares Holdings’ 4.5% stake in Zain. |
Implications | Etisalat requires a majority stake for funding to be approved. |
Outlook | If the sale goes ahead, it could potentially disrupt the deal for Etisalat to purchase Zain. |
The Turkish conglomerate Çukurova has announced that it is talks with Zain’s minority shareholder Al-Fawares Holdings, a Kuwaiti investment company that owns 4.5% of Zain, the Financial Times reports. Originally, Çukurova sought a 29.2% stake for 1.72 billion dinars (US$6.1 billion), however, Sheikh Khalifa Ali Al-Sabah, who represents Al-Fawares on Zain's board, said the proposed price and the stake size had changed. He was quoted in the Financial Times as stating: "There is progress, but there is no binding agreement of any sort, and we are also talking to other interested parties".
The announcement comes a few months after Etisalat announced it wanted to purchase a 46% stake in Zain; this stake would have effectively led to management control, as 10% of Zain’s shares are treasury shares with no voting rights. A dispute occurred when Etisalat was approved to go ahead with the due-diligence process without making a firm offer for the operator. At the time, Al-Fawares Holdings sought legal action against this decision, but the case has now been dismissed (see Kuwait: 24 December 2010: Kuwaiti Court Dismisses Zain’s Minority-Shareholder Lawsuit over Etisalat Stake Purchase).
Outlook and Implications
Al-Fawares is using an alternative approach to express its discontent at Etisalat taking a majority stake in the operator. Its stake in Zain will be threatened if Etisalat goes ahead with the stake purchase. Therefore, selling early to a Turkish group will at least give it a good financial return for the stake, and continue to disrupt Etisalat’s takeover of Zain.
- Etisalat Requirement for Deal to Go Ahead: For Etisalat to go ahead with the purchase of 46% of Zain, it requires financing—however, the banks it has been in talks with have set terms that it takes management control of the operator. If Etisalat is not able to purchase Al-Fawares’ minority stake, Etisalat will no longer be able to obtain the management control it needs for financing (see Middle East and North Africa: 22 December 2010: Etisalat Requires Majority Zain Stake for Funding Approval).
- Resolution of Other Assets: Most other hurdles that would have stifled the deal’s progress have been resolved. Prior to the intervention from Al-Fawares, Zain and Etisalat were in the difficult position of having competing mobile operations in Saudi Arabia. In Saudi Arabia, Etisalat owns Mobily, the second mobile operator; however it competes with Zain, the third entrant. Zain has now appointed UBS bank to sell off its Saudi mobile asset as it did not receive any bids from other operators (see Saudi Arabia: 15 December 2010: Zain Appoints UBS to Sell Zain Saudi Arabia ).