Minority shareholders file lawsuits to block Zain deal

One of Zain’s shareholders has initiated legal proceedings in an attempt to prevent the sale of a 46% stake in the company to rival operator Etisalat, in a move that threatens the proposed US$12 billion deal between the two Middle Eastern firms.

The shareholder in question, Fawares Holding, has a minority stake of around 4.5% of Zain, but it is not the only minority shareholder to express its displeasure at the proposed deal, which has been spearheaded by Zain’s largest shareholder, the Kharafi family.

Many of the smaller shareholders – including one of the richest men in Kuwait, Sheikh Salem al-Ali al-Sabah, who reportedly has indirect influence over 15% of Zain - are represented by the Securities Group. The group’s chairman, Ali Mousa, has stated to the Financial Times that none of the ‘major’ shareholders represented by his group would be selling their assets to Etisalat.

The Kharafi family does not hold a massive majority of Zain’s shares, owning (directly and indirectly) between 20% and 25% of the firm. The deal could therefore collapse without the requisite support from other shareholders – although the Kharafi family denies that it has failed to garner this support, Fawares Holding claims otherwise, and observers believe that the deal is close to failing.

The key issue that has upset minority shareholders is that for the deal to proceed, Zain would be required to divest itself of some of its highly valuable Saudi Arabian operations in order to conform to the country’s regulations – this is because Etisalat is also currently operating in Saudi Arabia.

A representative of Fawares on Zain’s board, Sheikh Khalifa Ali al-Khalifa al-Sabah , commented: "The shareholders remaining in Zain after the Kharafis sell to Etisalat will be stuck with a company that doesn’t own Zain Saudi Arabia, which is central to the company’s plans and future.”

In addition to the legal action taken by Fawares, Khalifa has also filed a lawsuit to impede the deal. The Kharafi family has stated its belief that legal action “will fail”.

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