Shares in Saudi Arabia's Kingdom Holding Company (KHC) rose yesterday as the company said it would begin conducting due diligence to acquire a stake in Zain's telecommunications operations in the kingdom.
The move comes just weeks after Etisalat's failed bid to buy a controlling stake in Zain, based in Kuwait, for US$12 billion (Dh44.07bn).
Zain said on Thursday it had "signed a non-binding term sheet" over the sale of a 25 per cent stake in Zain Saudi Arabia to KHC and its partner Bahrain Telecommunications (Batelco).
In an amendment to that statement filed yesterday on the Saudi Tadawul stock exchange, KHC said: "The due diligence process will start as soon as we get the approvals from the board of Zain Saudi Arabia."
KHC's share price increased the most in almost two weeks in early trading yesterday, rising 2.2 per cent to 9.3 riyals on the Tadawul on news that the deal was moving forward. The stock closed 1.65 per cent higher at 9.25 riyals.
In March, KHC and Batelco offered $950 million in cash for the stake, subject to the findings of its due diligence examination of the company.
A major shake-up of the Zain board, the members of which have been at odds over the future of the company, could be on the cards when shareholders meet on Tuesday, analysts say.
The sale of Zain's interest in Zain Saudi Arabia began during Etisalat's unsuccessful attempt to buy a 46 per cent stake in the company. Etisalat made the sale of the unit a condition of the deal because it was already operating in Saudi Arabia.
But shareholder disagreements and uncertainty in the region led Etisalat to scrap the deal last month.
"Due to the results of due diligence done by Etisalat's financial advisers and legal experts, the political turmoil in the region, the absence of a consensus between Zain's shareholders, and the effect of the law binding offers that is due to be issued in Kuwait … Etisalat conditions that were announced on November 3 are no longer applicable," the company said last month.
Etisalat's expansion plans were further hampered when it dropped a mobile licence deal in Syria worth more than $122m due to unattractive terms.
The Zain deal would have given Etisalat access to new markets, such as Iraq, Morocco and Kuwait, as it faced greater competition in the markets where it already operates.
Etisalat is pursuing expansion plans in Iraq, Lebanon and mobile services for Sudan, where it already has landline operations, but the Zain setback is expected to lead the company to focus on acquiring smaller operators in the region, analysts say.
KHC is a Saudi Arabian investment company, founded by Prince Alwaleed bin Talal bin Abdulaziz Al Saud in Riyadh in 1980, and claims to be the largest foreign investor in the US.