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Mon 20 Jul 2009 10:09 PM

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Vivendi breaks Zain talks over Africa assets

UPDATE 4: Kuwaiti telco still conducting strategic review, other parties said interested.

Vivendi breaks Zain talks over Africa assets
TALKS END: Kuwaits Zain still hopes to offload Africa unit despite Vivendi breaking off talks Monday.

Kuwaiti telecoms group Zain said on Monday it still hoped to sell its African unit despite French media and telecoms giant Vivendi calling off talks to buy a majority stake in the business.

Shares in Vivendi, which has vowed to keep its BBB credit rating intact and maintain its dividend at current levels, rose more than 4 percent after the Paris-based group said talks were "interrupted", while shares in Zain slipped 1.7 percent.

Vivendi said it ended discussions as the investment was not consistent with its financial criteria.

Zain, the Gulf Arab region's third-largest telecoms firm by market value, responded by saying it was still conducting a review of its African unit to maximise shareholder value and would "only consider approaches that achieve this".

Zain, which is being advised by UBS, said several parties had expressed interest in its African operations, although any sale would not include its Moroccan and Sudanese units.

A number of companies other than Vivendi have already signed confidentiality agreements relating to Zain Africa, banking sources said.

"I can't find a tactical reason for selling this operation at this time," said Jithesh Gopi, head of research at Bahrain-based Sico Investments.

"The African operations have affected their profits in the last couple of quarters so this may be a factor.

"These are operations and investments that require time," said Gopi. "This (Africa) is one of the only remaining growth markets in the world as far as mobile is concerned and so on.

Zain CEO Saad Barrak told Reuters earlier this month the firm was in early talks with potential buyers for a stake in its African operations and could consider a partner for a 25 percent stake.

A France Telecom spokesman said it had been named in a Kuwaiti newspaper report as a potential bidder but the company was not interested in acquiring the business.

Kuwaiti newspaper al-Qabas reported on Monday that Zain had rejected a bid from Vivendi to buy a 65 percent stake in Zain Africa for about $10.5 billion.

The paper did not give a reason for the rejection but said it could be related to the method of payment.

Rumours the group was interested in Zain's African activities, which Vivendi confirmed on July 9, have depressed Vivendi's share price in recent weeks.

Analysts voiced concern over difficulties raising a significant amount of funds in the current climate, and noted that a large acquisition could endanger Vivendi's debt rating.

"Concerns over such an acquisition had caused weakness in the Vivendi share price over the last two months ... hence we would expect an end to the talks to have some immediate positive impact," said Goldman Sachs analyst Richard Jones.

Bankers said earlier this month Vivendi was seeking a 4.5 billion euro syndicated loan to back its acquisition of a majority stake in Zain's African telecom operations.Zain, whose biggest shareholder is Kuwait's sovereign wealth fund, has spent more than $12 billion to expand in Africa since 2005 and plans to use another $2 billion this year.

"This is a very big operation so everyone will be cautious," Gopi said, adding only a handful of top telecoms names would have the capacity or appetite to take on the venture. (Reuters)

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