Yesterday, after the end of the trading session, NIC issued a statement in Kuwait bourse stating that their commitment to sell 46% of Zain was over. The statement ended a USD12 billion deal talks which began in September when Etisalat first announced their interest in acquiring a stake in their Kuwaiti rival Zain. The deal has faced many difficulties, most importantly was the opposition of other key shareholders of the company and the difficulties they faced in trying to sell their stake in Zain Saudi.
What’s next?
When the deal was first announced on September 29th Zain was trading at KD1.260, then it rallied after the announcement to KD1.360, up 8%. It also ended the year by increasing its’ market cap by 25% since the day prior to announcement.
Zain has fallen 15.8% YTD and broke both its’ 20 and 40 day moving averages; yesterday it broke its’ 200 day moving average.
The Chart above shows a rebasing price graph of both Zain and Etisalat since the announcement of the deal to date. Zain is currently trading at a EV/EBITDA multiple of 6.7x as opposed to its peers of 5x, a 34% premium to its’ peers. Also, it’s trading a P/E 15.4x, against an average of 8.4x- 83% premium. Some might say that this premium was justified as Zain was an acquisition target- but what about now will it fall to match its peers since there’s no acquisition? Using a 2011 EPS estimate of 83 fils and multiplying it with the current average multiple of 8.4x Zain should fall to 0.700.
According to a recent press release by Etisalat, the company reiterated its stand towards Zain acquisition and that it’s still interested in the Zain deal. Bin Ali added that pertinent and suitable information related to the due diligence have been collected and “Etisalat” is in the process to study and analyze the collected information. Consequently the results will be discussed with the sellers in a later stage, and the final results will be presented to Etisalat`s Board of Directors to make a decision in this regard. Etisalat will inform its stakeholders with the progress of the Proposed Transaction in due course.
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