Alwaleed Proposal May Pave Way for Etisalat's $12 Billion Offer for Zain

Prince Alwaleed bin Talal’s bid to join with a partner to buy Zain’s holding in its Saudi unit may clear the way for Etisalat’s $12 billion offer for a majority stake in Kuwait’s biggest phone operator.

Kingdom Holding Co. (KINGDOM), controlled by Saudi Prince Alwaleed, and Bahrain Telecommunications Co. offered $950 million for the 25 percent stake held by Zain, as Mobile Telecommunication Co. is known, in Zain Saudi Arabia, the partners said today in a statement. The non-binding offer doesn’t include the $3.8 billion of Zain Saudi’s debt and has received preliminary acceptance by the board of Zain Kuwait, the statement said.

“The bid will lead to increased optimism of a deal finally happening between Etisalat and Zain,” said Julian Bruce, director of equity sales at EFG-Hermes Holding SAE in Dubai.

Emirates Telecommunications Corp., or Etisalat, last month missed a second deadline in its attempt to acquire a majority stake in Zain. Abu Dhabi-based Etisalat said March 2 it is still interested in buying a majority holding. The purchase had been contingent on a timely sale of Zain’s stake in its Saudi unit.

Zain’s second-biggest shareholder, Al-Khair National for Stocks & Real Estate Co., which is owned by Kuwait’s Kharafi Group, was leading discussions with Etisalat on its bid for Zain. Etisalat declined to comment today on the status of talks.

Photographer: Waseem Obaidi/Bloomberg

Saudi Prince Alwaleed bin Talal. Close

Saudi Prince Alwaleed bin Talal.

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Photographer: Waseem Obaidi/Bloomberg

Saudi Prince Alwaleed bin Talal.

‘Best of Both Worlds’

Kingdom Holding and Bahrain Telecommunications, the Persian Gulf state’s biggest phone company known as Batelco, expect to submit a binding offer by mid-May, subject to successful completion of due diligence, Batelco Chief Executive Officer Peter George Kaliaropoulos said in the statement today. Due diligence could take at least six weeks, the statement said.

“The combination of Batelco and Kingdom offers the best of both worlds, operating experience combined with influence and track record in KSA,” Bruce said.

Zain Saudi jumped to the highest price in almost a month, surging 6.3 percent to 7.60 riyals. Kingdom rose 2.2 percent to 9.50 riyals, the highest since Feb. 16.

“It’s a generous offer,” said Irfan Ellam, an analyst at Al Mal Capital PJSC in Dubai. “It means Etisalat’s bid for Zain Group can go through once this happens.”

Etisalat’s purchase of Zain would “create a company with the best footprint in the Middle East, an Arabian company that stands on the world stage of telecoms,” he said.

Expanded Reach

If completed, the deal will extend Etisalat’s reach in the Middle East, where Zain operates in countries including Kuwait and Iraq. Etisalat offers telecommunications services in 18 countries in the Middle East, Africa and Asia, counting more than 100 million customers, according to its website.

Etisalat plans to finance its $12 billion offer for control of Zain in three stages of loans, with the first $6 billion as a bridge loan payable in 18 months, Etisalat Chief Financial Officer Salem al-Sharhan said in a phone interview in January. Etisalat would also borrow $3 billion payable in three years and another $3 billion payable in five years, al-Sharhan said.

Zain’s board last month rejected separate offers from Kingdom and Batelco to buy the stake in its Saudi unit. The decision was seen as thwarting Etisalat’s bid for a 46 percent stake in Zain as the Emirati company had said Zain needed to sell its stake in the Saudi unit in a “timely fashion” for the deal to proceed.

“The offer was reasonable to all parties,” Prince Alwaleed said in today’s statement. “Our investment in Zain Saudi Arabia is a strategic investment decision by KHC to enter the telecommunications sector in a large and promising market such as Saudi Arabia, making this deal our initial entry for future expansion in the telecommunications sector regionally.”

To contact the reporters on this story: Fiona MacDonald in Kuwait at fmacdonald4@bloomberg.net; Zahra Hankir in Dubai at zhankir@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net Claudia Maedler at cmaedler@bloomberg.net

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