x Abu Dhabi, UAETuesday 25 July 2017

Turkcel owner makes late $8bn bid for Zain stake

Etisalat already in talks to purchase 51% of Zain with deadline of Saturday as Turkish offer comes out of the blue for a 29.9 per cent stake.

A late bid from the owner of Turkcell may derail Etisalat's offer for half the company.
A late bid from the owner of Turkcell may derail Etisalat's offer for half the company.

A Turkish company has made a US$7.89 billion (Dh28.98bn) bid for a 29.9 per cent stake in the Kuwaiti telecommunications operator Zain, just days before Etisalat was due to sign an agreement to buy a majority stake in the company.

Etisalat's and Zain's shareholders have until tomorrow to sign a "definitive transaction" agreement under which the UAE company would buy 46 per cent of the Kuwaiti operator for 1.70 dinars a share.

The transaction would ultimately give Etisalat a 51 per cent controlling stake of the company worth 3.36bn Kuwaiti dinars (Dh43.68bn).

It would also make Etisalat the largest Middle Eastern operator with about 146 million subscribers.

A new twist emerged, however, on Wednesday when Cukurova Holding, a group that controls the Turkish telecoms operator Turkcell, offered 1.72 dinars per share for a 29.9 per cent stake in the operator.

Cukurova's offer was being managed by Sheikh Khalifa Ali Al Sabah, a member of Kuwait's Royal Family and also a member of Zain's board. Sheikh Khalifa said he was in talks with more than one other company.

However, it remains unclear whether his offer for Zain would be approved by Kuwait Stock Exchange officials. According to a notice published in the newspaper Al Shahed yesterday, the offer could violate a Kuwaiti law that states that no director can sell shares of a company while serving on its board.

"Why that agreement was concluded in secret without making it public in Kuwait's stock market is a clear violation of the transparency laws," said the notice written by Al Khair National for Stocks and Real Estate, a subsidiary of the Kharafi Group, a major private shareholder in Zain.

Analysts believe other companies including France Telecom, South Africa's MTN Group and Saudi Telecom Company (STC) could be eyeing a stake in Zain before tomorrow's deadline.

Martin Mabbutt, a telecoms analyst with Nomura Securities, said: "If you want a larger presence in a region, opportunities are quite difficult to find.

"Zain is one of those assets where the shareholders have decided to get out of telecoms and it's one of the assets there's demand for."

France Telecom would be the most likely operator to make an offer for Zain.

The company has a strong presence in Jordan and is in negotiations to buy Korek Telecom in Iraq as part of a wider strategy to double revenue from emerging markets.

"France Telecom would be a fairly obvious candidate [for Zain]. However, the scale of the deal is big and may be a little bit beyond what they want to do," Mr Mabbutt said. Representatives from France Telecom and MTN declined to comment on their perceived interest in Zain. STC could not be reached.

While anything could happen, Mr Mabbutt said that Etisalat remained the odds-on favourite to emerge with a signed deal to buy Zain after tomorrow.

"I'm not surprised at the interest behind Zain, but Etisalat will probably be a good owner.

"It makes complete sense for its corporate strategy to do this, and ultimately, it sounds like Etisalat will win out," Mr Mabbutt said.

Several Etisalat executives were in a board meeting all day yesterday finalising the offer for the Zain stake, a source familiar with the matter said.

Ahmed bin Ali, the senior vice president of corporate communications for Etisalat, declined to comment on the state of the company's negotiations with Zain.

Etisalat is expected to make its decision tomorrow. A notice on the Kuwait Stock Exchange from Al Khair on Wednesday said that Etisalat had not requested an extension on tomorrow's deadline.