Don't look for a local acquisition

Comment A tie-up between Etisalat and Zain might not be as logical as has been suggested.

Etisalat's head of international investments last month said the company would like to buy a controlling stake in Zain. Days later, Zain's largest shareholder reportedly said it was open to selling. Within weeks, Zain is calling a special shareholder meeting to change its company regulations to allow outside investors to buy a large stake. To the casual observer, the timing looks perfect, and the pattern clear. The UAE's national telecommunications company is set to become the largest in the region.

But things are a little less clear once you look under the surface. Etisalat officials were quick to play down their colleague's comments, and the chairman soon issued a statement saying no proposal had been made and no discussions had taken place. Zain officials, speaking on background, said Etisalat's comments deserved little attention. More significantly, there are few precedents in the GCC for large-scale cross-border mergers and acquisitions, and a buyout by Etisalat of Zain would be the largest such deal of its kind, by an order of magnitude. The Gulf's largest national corporations have shown a clear reluctance to acquire each other, choosing instead to expand within the region through cautious, collaborative joint ventures.

Overlap is also a big issue. Etisalat and Zain both operate networks in Nigeria, Saudi Arabia, Sudan and four other small African markets, meaning that major regulatory headaches would accompany a merger. European operators such as France Telecom or Deutsche Telecom, which have both expressed an interest in boosting their small regional presence, make more likely partners for the Kuwaiti operator.