STC’s Viva buy-out plan seen as fit strategy, says Bahrain-based SICO

Saudi Telecom Co.’s offer to raise its stake to 100 percent in Kuwait Telecom Co. (Viva) fits well with the telecom giant’s strategy, as Viva is one of the top performing assets in STC’s international operations, Bahrain-based Securities & Investment Co. (SICO) said in a report.

“Viva’s buy-out would be a rational decision for STC due to strong performance of the telco and STC’s strong cash position,” Nishit Lakhotia, SICO’s head of research said in the report.

STC last week submitted a voluntary offer to raise its stake in Kuwait’s second-largest telecom operator to 100 percent from the 26 percent it already owns.

Viva on Monday said its board of directors has given an initial approval and is waiting for a response from Kuwait’s Capital Markets Authority.

According to Kuwait CMA’s rules, any potential acquirer looking to buy more than 30 percent of a listed company needs to make a mandatory open offer for the remainder of the shares.

The floor price for mandatory offer should be based on average price in six-months preceding the offer and will be decided by Kuwait Stock Exchange, according to the CMA.

SICO said the six-month average price of Viva’s stock prior to the announcement was KWD 0.904 per share, and “we expect STC’s offer to be higher than this level.”

STC previously said the Viva buy-out will be financed from its own sources. STC has more than SAR 20 billion in cash and short-term investments as of Q3-2015, which is more than sufficient to fund the acquisition of Viva’s remaining stake, SICO pointed out.

Acquisition of Viva should cost between SAR 4.5 billion to SAR 5 billion, if they are successful in acquiring the entire remaining stake, SICO added.

“However, we do not expect the voluntary offer to be fully subscribed considering the large free float… Therefore, we believe that Viva will continue to be a listed entity with a higher stake of STC and lower free float.”

Write to Brinda Darasha at brinda.d@argaamplus.com