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Zain agrees sale of Saudi operations – could Etisalat deal be back on?

The beleaguered merger proposal between Zain and Etisalat could be back on track, with Zain reportedly agreeing to sell its Saudi Arabian operations. The Kuwaiti firm’s 25% stake in Zain Saudi Arabia has presented a major regulatory obstacle to Etisalat’s attempted purchase of a 46% controlling stake, as the UAE operator has existing operations in Saudi Arabia in the form of Mobily.

The stake in Zain Saudi is reportedly being sold to a joint venture between Bahraini operator Batelco and public holding company Kingdom Holding, controlled by Prince Alwaleed bin Talal. A non-binding offer is expected to be agreed – and possibly even confirmed – today. Announced yesterday, the offer has already caused a rise in the shares of the three involved firms.

The two buying firms had reportedly made individual bids which were rejected by Zain on the grounds that they were not high enough. Irfan Ellam, an analyst with Al Mal Capital, has stated that the joint offer is an obvious choice “because Batelco has the telecom experience and Prince Alwaleed is well connected by investors. The question is: what price are they bidding?”

Regulatory issues would have prevented Etisalat from acquiring a controlling stake in Zain if both firms had ongoing operations in Saudi Arabia, but the proposed sale of Zain Saudi Arabia became a massive bone of contention among shareholders. Etisalat’s request for Zain to sell its assets in a “timely fashion” was seen by many minority shareholders as akin to squandering a valuable resource for little gain.

The merger has been beset with trouble throughout its existence and it appeared last month that the final blow had been dealt when Zain’s biggest shareholder, the Kharafi Group, withdrew its support for the transaction when the second deadline for the agreement of terms elapsed without a deal being reached.

The deal could be resurrected following this new development, since Zain Saudi has been the key issue at the heart of the deal. “If Zain Saudi is taken out of the equation then Etisalat’s offer can go ahead as the biggest stumbling block is Zain Saudi”, according to Ellam.

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