October 3, 2010 by Saud
Last week, UAE’s Emirates Telecommunications Corp (Etisalat) has made a preliminary and conditional offer to buy a major stake in Zain. Etisalat offered to buy 46% of the company at a price of KD1.7 per share, a 25% over last closing price and 35% over Tuesday’s price- the day before the announcement.
Based on the calculations in the table above, the KD1.7 per share offer seems attractive given that it’s a 35% premium over Tuesday’s closing price. Also, the offer implies a 2011E EV/EBITDA multiple of 10.5x and 2011E P/E of 19.8x, a 89% and 118% premium vs the CEEMEA peer average, respectively.
One drawback of the deal would be Etisalat’s ownership in Mobily
Saudi Arabia. The regulation in Saudi Arabia doesn’t allow one owner to own two operators. Hence, they would have to sell one of their stakes in either Mobily (27.5% owned by Etisalat) or Zain Saudi (25% owned by Zain)- they would probably sell Zain Saudi.
Saudi Arabia. The regulation in Saudi Arabia doesn’t allow one owner to own two operators. Hence, they would have to sell one of their stakes in either Mobily (27.5% owned by Etisalat) or Zain Saudi (25% owned by Zain)- they would probably sell Zain Saudi. Kharafi Group, the second largest shareholders in Zain, are inviting the minority shareholders to join in this deal through National Investment Co. All shareholders who own no more than 300,000 shares have the opportunity to join in this deal.
The stock traded heavily on the day the news was out, as 27 million shares traded as opposed to 6.5 million the day before and the price increased by 8%. The stock was halted from trading on Thursday, however all Kharafi’s stocks rallied. Investors who are not joining in the deal should be careful as the price could plunge after the deal.
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