Etisalat has raised its bid for the Kuwaiti telecommunications operator Zain to Dh44 billion (US$11.97bn) for a 51 per stake as due diligence on the acquisition formally begins.
The company had initially bid Dh38bn for a 46 per cent stake of Zain last September.
In the new deal, Etisalat would acquire 51 per cent of the approximately 3.88 billion shares of Zain traded on the Kuwait Stock Exchange. It would make Etisalat one of the largest telecoms operators in the world.
The offer was made to Al Khair National for Stock and Real Estate Company, owned by the Kharafi Group, one of the largest shareholders of Zain, which has solicited other investors to agree to sell their shares to reach the required 46 per cent threshold.
“Etisalat’s strategy is based upon sound and calculated foundations, one of the most important of which is expansion into regional and international growth markets which offer great opportunities to increase and diversify our sources of revenue,” said Mohammed Omran, the chairman of Etisalat.
The deal is now subject to a number of conditions, Etisalat said yesterday. These included the divestiture of Zain’s Saudi Arabian unit, ensuring the deal met regulatory and due diligence approvals and that there was no material adverse change in Zain’s business.
Etisalat’s proposal to buy the Zain stake will end unless both sign a “definitive transaction document” by January 15, the company said. It added the deal was unlikely to close before the end of the first quarter next year.
“Matters are still at an early stage and the information and data currently available to us are partial,” Mr Omran said. “Once the rigorous process of due diligence is completed, the picture will become clear and we will then be in full possession of the necessary details.”
Irfan Ellam, the vice president of research at Al Mal Capital, said the increased bid by Etisalat should be good news for shareholders.
“The deal appears to be moving in the right direction in the sense that more shareholders will benefit from the price,” Mr Ellam said.
He noted that Zain’s management had recently decreased the amount of capital expenditure, which would allow it to increase cash flow and pay a special dividend to shareholders next year.
“That makes it more attractive to an acquirer but it also means that it retains cash to pay out this dividend,” Mr Ellam said.
“But if control changes, Etisalat will probably increase capital expenditure relative to Zain’s current management, both to maintain Zain’s competitive position and invest for the future technologies.”
Zain operations in several countries are highly coveted by Etisalat, which had earlier stated its intention to “aggressively” expand its business across the Middle East and Africa. These include Zain’s businesses in Iraq, Sudan, Jordan and Morocco.
A source familiar with the deal said Etisalat’s board of directors approved the increased stake in Zain and moved to a due diligence process after a two-hour closed-doors meeting on Tuesday.
Neither Etisalat nor Zain have disclosed the break fee in case the acquisition is not approved by the deadline next year.
“[Zain] shareholders have done the deal between them and Etisalat,” a Zain spokesman said. “As a formality, the board of the directors will meet and advise management on the terms and conditions of the deal. We are currently not privy to the terms of the agreement.”
Etisalat shares closed flat at D11 yesterday on the Abu Dhabi Securities Exchange, while Zain fell 1.4 per cent to 1.4 Kuwaiti dinars.
