A rift between management and a major shareholder has ended with the resignation of Dr Saad al Barrak, the chief executive of Zain, Kuwait's largest public company.
Zain chief quits over rift
A rift between management and a major shareholder has ended with the resignation of Dr Saad al Barrak, the chief executive of Zain, Kuwait's largest public company. Differences between Dr al Barrak and Kuwait's Kharafi Group, Zain's largest shareholder, centred on the future of the company, sources said. "It is a result of a process of divergence between his desire to grow the company and the major shareholder's desire to cash in," said Simon Simonian, a telecoms analyst at Shuaa Capital in Dubai.
The resignation, announced to the Kuwaiti bourse yesterday, brought to an end Dr al Barrak's eight-year reign over the company. He is credited with transforming Zain from a local Kuwaiti mobile phone operator to one of the Gulf's most successful international businesses. News of the resignation emerged late on Tuesday night, with a number of executives of regional telecoms companies learning of the development through text messages and e-mails.
No further information about Dr al Barrak's departure or a possible successor has been provided by Zain. Dr al Barrak's plan to build Zain into a global telecoms empire originated in 2002 through his "3x3x3" strategy, which involved a series of three-year plans to build a regional, then international, then global business. The first two phases were executed well, analysts said, with Zain building a 24-country operation that spanned much of Africa and the Middle East. In early 2008, there was talk in the market of a move into China, and the company said it was considering a number of ambitious international opportunities.
But by early last year, Kharafi, which had patiently funded and backed the company throughout its growth, began expressing an interest to cash in on its investment, a consultant familiar with the company said. That request led to the surprise decision by Dr al Barrak to announce last June that Zain's African assets were up for sale. As the sale process progressed and Zain entered discussions with several suitors, including France's Vivendi group, talk emerged of a possible takeover of Zain.
Soon after the Vivendi talks fell through, the Kharafi Group announced it would assemble a majority stake in the company - made up primarily of itself and smaller investors - and sell the stake to a consortium led by the Vavasi Group, a little-known Indian technology company. Zain's share price has fallen by 43 per cent since the sale of a majority stake in the company was announced last September, erasing more than US$10 billion (Dh36.73bn) of shareholder value. Dr al Barrak has yet to comment publicly on the deal, aside from acknowledging its existence.
This reflected a management that was "completely in the dark on the whole process", said Mr Simonian of Shuaa Capital. "The whole process has streched on now, and management have been living for almost a year with this cloud of uncertainty over them," he said. "It has undermined the performance of the company." The sale, co-ordinated by the company's largest shareholder, hit a number of obstacles. No major investor has publicly committed to joining the purchasing consortium, and two large Indian telecoms companies initially announced as members of the group quickly clarified that they had merely been presented with a proposal to take part. Neither has since committed to the deal.
A Kharafi Group spokesman could not be reached for comment. Earlier in the month, the company said the sale was still going ahead, but could take longer than planned. The deal was originally scheduled to be completed by the end of last month. Dr al Barrak was one of the Middle East's most outspoken chief executives, known as much for his colourful outbursts at industry events as he was for his shrewd investments and relentless management style.
"I don't believe in the public sector, I think it is a socialist ideology that went away with the Soviet Union," he told a conference in Jordan last year, in reference to government ownership of telecoms companies. "Partnerships with the public sector are totally ridiculous, we should get rid of them." But behind the big words was one of the Gulf's best chief executives, analysts and other executives said yesterday.
"He was the mastermind, the true entrepreneur," said Mr Simonian. "He joined a small Kuwaiti telco and built it into something completely different. You can't compare that story to any other government operator in the region." @Email:email@example.com