Informa TM Analyst Viewpoint on Etisalat's bid for Zain
Matthew Reed, Senior Analyst at Informa Telecoms & Media comments on Etisalat's bid for Zain.
The case for consolidation among the big Gulf operators has been building for some time. With each having similar objectives of building themselves into major players in the Middle East and beyond, there wasn't room for all to succeed. Zain was the most ambitious of its peers but it was also the first to blink, with its grand expansion plans unravelling over the past year or so, leading to the sale of the Zain Africa operations to Bharti Airtel.
Now Etisalat of the UAE has tabled an offer for a 46% stake in the remaining Zain group – and it's a move that makes a lot of sense in terms of advancing Etisalat's own expansion plans, because several of the Zain units are very successful and attractive assets. In addition, Zain's operations are now almost entirely in the Middle East, which suits Etisalat as it is also the latter's home region, and one that the operator understands well and where it could potentially achieve substantial economies of scale, and yet Zain's footprint is largely complementary to that of Etisalat, with only one important overlap.
If Etisalat's offer is successful, the UAE operator will be able to add Zain's market-leading operations in the high-growth markets of Iraq and Sudan – both of which are countries that Etisalat has been targeting for some time. Etisalat does already have a presence in Sudan through CDMA operator Canar, but it has been unsuccessful in its quest for a GSM licence in the country. In Iraq, Etisalat has in the past had unsuccessful takeover talks with No. 3 operator Korek Telecom.
Etisalat would also add Zain's operations in Bahrain, Jordan and Kuwait – as well as a management contract in Lebanon and assets in Morocco – to its portfolio if a takeover deal is agreed.
It is in Saudi Arabia that things get awkward, however, as both Etisalat and Zain already have subsidiaries in the country: Etisalat has a 26% stake in No. 2 operator Mobily while Zain group has a 25% stake in Zain Saudi Arabia. If Etisalat buys into Zain, the CITC – Saudi Arabia's telecoms regulator – is expected to insist that Etisalat disposes of one of the two assets. Etisalat would almost certainly choose to sell Zain Saudi Arabia, which could be of interest to MTN, for example, as the South African group has been thwarted in a number of its recent M&A ventures, including takeover talks with Orascom. Qatar's Q-tel might also be interested in Zain Saudi Arabia.
If Etisalat is successful in its bid for Zain, the UAE operator will also be propelled up the operator-ranking tables. Leaving aside Zain Saudi Arabia, a combined Etisalat and Zain group would be the world's nineteenth largest mobile operating group in terms of total subscriptions, with about 138 million subscriptions, and the twenty-fifth largest in the world in terms of proportionate subscriptions, with about 62 million subscriptions.