Etisalat's offer for Zain boosted by Kuwaiti operator's approval of bid by KHC and Batelco

Zain has approved a joint bid by Kingdom Holding Company and Batelco to acquire a 25 per cent stake in its Saudi Arabian unit for $950 million (Dh3.48 billion). The deal could pave the way for Etisalat's offer for a controlling stake in Zain worth $11bn to continue.

Zain has approved a joint bid by Kingdom Holding and Bahrain Telecommunications Company (Batelco) to acquire a 25 per cent stake in its Saudi Arabian unit for US$950 million (Dh3.48 billion).

The deal, if completed, would remove one of the main obstacles behind an $11bn offer by the UAE telecoms company Etisalat for a controlling stake in Zain.

The offer for Zain Saudi Arabia, which represents a 33 per cent premium on the current value of the operator, is subject to a due diligence process that could take at least six weeks.

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This is the second bid by both Kingdom Holding and Batelco for Zain Saudi Arabia, after previous offers were rejected by Zain's board for being too low. "The offer was reasonable to all parties," said Prince Alwaleed bin Talal bin Abdulaziz Al Saud, the chairman of KHC.

"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." Zain's controlling stake in its Saudi unit is valued at about 2.67bn riyals (Dh2.61bn). Eight Saudi companies own another 25 per cent of Zain, while the state pension fund owns 3.5 per cent. The remainder is floated on the Tadawul stock exchange. Selling Zain's Saudi stake was one of three main conditions Etisalat required to buy its stake in the Kuwaiti operator.

Etisalat already operates in Saudi Arabia under the Mobily brand and acquiring the Zain unit would not be allowed by the kingdom's telecoms regulators.

The other two conditions required to close the deal are to acquire 46 per cent of the company and to complete the due diligence process.

"The news has favourable consequences for Etisalat's proposed acquisition and also sees Batelco making greater strides into the Middle East region," said Lindsey McDonald, a technology consultant with Frost & Sullivan. Jamal al Jarwan, the group chief investments officer at Etisalat, confirmed last month that the company had completed the due diligence process and it was "internally analysing" Zain's finances. But Mohammed Omran, the chairman of Etisalat, said it was "too early" to tell if the company had the support of 46 per cent of Zain's shareholders.

It is also unclear who will take control of Zain Saudi Arabia's $3.8bn debt. In a statement, Batelco dismissed earlier reports that it would take on the operator's debt.