Etisalat's pursuit of a 46 per cent stake in Zain has raised questions over the future of Zain's Saudi unit, analysts say.
Etisalat and Zain have units in the kingdom and compete for market share.
"The question that remains is what happens to Zain Saudi if this deal goes through," said Farouk Miah, an analyst at NCB Capital in Riyadh.
NCB Capital initiated coverage of the Saudi telecommunications operator with a neutral rating and downside potential of 8 per cent to 7 Saudi riyals a share, down slightly from its current 7.50 riyals a share on the Saudi Tadawul index.
"The Saudi subsidiary is not in a good state.
"They have 12 billion riyals' worth of debt, with outstanding payments," Mr Miah said. "The business is doing OK but not as expected.
"It's a big risk for someone new to buy them and keep it going as it is."
Zain paid 23bn riyals for its mobile licence in 2007 and in the process accumulated debt of 11.8bn riyals to establish operations in the kingdom, which the company expected to pay off gradually through internal accruals.
But the telecoms landscape in Saudi Arabia has been tougher than expected and the company's financial progress has not been in line with initial forecasts.
In the past six months, shares of Zain have fallen by 17.5 per cent as investors have worried about the future of the mobile operator.
Mr Miah said an acquisition by Etihad Atheeb, a Saudi telecoms company, migh be a successful formula.
"Atheeb's strength is home internet; Zain's is mobile.
"If they both bring their strengths together, it may work, but then the key question is how they restructure Zain's debt and coming payments," Mr Miah said.
"And at the moment, if there is that kind of money to spend, Zain doesn't look effective unless the business is restructured, cutting expenses and focusing on their mobile business."
