BREAKINGVIEWS-UBS royal pickle reveals Gulf M&A minefield

Thu Jun 21, 2012 9:41am BST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own)

By Una Galani

DUBAI, June 21 (Reuters Breakingviews) - UBS (UBSN.VX) has got itself into a royal pickle in Kuwait. The Swiss bank is fighting a claim that it failed to pay a local sheikh for helping it secure the $10.7 billion sale of the African subsidiary of part state-owned telecom operator Zain (ZAIN.KW). UBS denies that it entered into any contract with the sheikh. Yet if nothing else, the case has exposed the lengths to which big banks will go to schmooze Gulf royals.

Sheikh Meshal Jarah al-Sabah, a former head of Kuwaiti state security and member of the royal family, says he had a verbal agreement that UBS would pay him between 0.1 to 0.2 percent of the total sale value. He claims UBS was paid a fee of $60 million for its role as lead advisor on the transaction.

It is not uncommon for banks in the Middle East to give away up to 30 percent of their fees to a prominent local intermediary. But a written contract is usually a pre-requisite. Besides, UBS had advised Zain on previous deals and hardly needed an introduction to the firm.

Moreover, the fee the sheikh claims UBS received - equivalent to 0.6 percent of the deal's value - looks high for a region known for driving a hard bargain with investment bankers. UBS says it earned $22.5 million, or 0.2 percent of the deal's value, which is closer to the average for Middle East transactions, according to Freeman, a merger consultancy.

The embarrassment for UBS is the lengths to which it went to accommodate the royal. It confirms in the court papers that it invited the sheikh to formally apply for a non-executive job at the bank. As part of that process, the bank says it granted the sheikh separate meetings with two of UBS' top global investment bankers which took place after the Zain deal was agreed in 2010.

The sheikh ultimately ended up as an adviser to an unnamed Russian telecom firm, understood to be Vimpelcom VIP.N, on its operations in Algeria - a recommendation he claims was made by UBS shortly after the verbal agreement.

It is impossible to say what impact the public spat will have on UBS' business. In a region where ruling families control big deals, where blood ties often trump all other considerations, and where business is scarce, falling out with a sheikh of any stature is always a risk.

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CONTEXT NEWS

- UBS is fighting a legal claim that it failed to pay a Kuwaiti royal for his help in securing a $10.7 billion deal to sell the African assets of local telecom operator Zain to India’s Bharti Airtel (BRTI.NS) in 2010.

- Sheikh Meshal Jarah al-Sabah, a member of the ruling family and former head of Kuwait state security, is suing the Swiss bank in the Dubai international court for $21.4 million. The sheikh claims the bank made a verbal agreement to pay him 0.1 to 0.2 percent of the total sale value of the assets.

- UBS denies any agreement was made and that the total fee paid to the bank for the transaction was $22.5 million, not $60 million as claimed by the sheikh.

- The bank confirmed in court papers that it asked the Kuwaiti royal to formally apply for a non-executive position with the bank, and that he met with the then co-chief executives of the global investment bank Alex Wilmot-Sitwell and Carsten Kengeter. The bank confirmed the meetings took place in May 2010, after the deal between Zain and Bharti was agreed.

- UBS advised on Zain’s past deals including the $3.4 billion acquisition of Celtel International in 2005, the purchase of 65 percent of Nigeria’s Vmobile in 2006 and a bid for Pakistan’s Paktel in 2007.

- Saad al-Barrak, then chief executive of Zain, told the Financial Times that the firm had a “great strategic relationship” with UBS over many years.

- Legal documents for the case became publicly available between January and May this year. The legal representatives of both sides were due to meet in a case management conference on June 20.

- Court documents: r.reuters.com/ber88s

- FT story: r.reuters.com/zar88s

-- For previous columns by the author, Reuters customers can click on [GALANI/]

(Editing by Peter Thal Larsen and Sarah Bailey)

((una.galani@thomsonreuters.com)) Keywords: BREAKINGVIEWS UBS/

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