Axiata, Telenor to create regional giant

by NG MIN SHEN / pic by TMR

Axiata Group Bhd and Telenor ASA have proposed to merge their businesses in Asia, creating a regional giant with a revenue of over RM50 billion and the largest mobile operator provider in the country.

Telenor, which is a major shareholder of Digi.Com Bhd, and Axiata’s Celcom Axiata Bhd would have a combined subscriber base of more than 20 million, or two-thirds of the country’s population.

The non-cash merger to establish a new merged global entity will see both companies integrate their Asian operations within Asean and South Asia.

If successful, the merged entity will have a proforma revenue of more than RM50 billion, earnings before interest, taxes, depreciation and amortisation (Ebitda) of more than RM20 billion and profit after tax of around RM4 billion.

It will have about 267 million customers in nine countries versus 150 million customers in six countries today. The proposed transaction could deliver up to RM20 billion in incremental value through asset consolidation and economies of scale.

Axiata president and group CEO Tan Sri Jamaludin Ibrahim said the proposal to merge the companies’ Asia operations is in response to the mounting industry challenges such as the cost of data monetisation, heightened competition and the need for increasing capital expenditure as revenue growth has been flat.

“We believe one of the best ways to capture the scale, synergy and capabilities of both companies is to merge everything into this merged company.

Telenor Asia will inject all its Asia assets into the company while we are injecting practically all our operations into this merged entity, minus — for now — India, Bangladesh and our digital assets,” he said at a briefing in Kuala Lumpur yesterday.

Telenor is expected to own 56.5% of the enlarged asset merged entity, while government-linked company Axiata will hold a 43.5% stake.

“There will be representatives on the board that reflect the shareholding. We’ve also agreed that in the first phase, Axiata will have the right to appoint the chairman and Telenor will have the right to appoint the CEO,” Telenor president and CEO Sigve Brekke said.

The merged company is expected to have a dual listing on Bursa Malaysia and another major international exchange within the next few years.

The two parties will work towards a binding agreement in relation to the proposed transaction by the end of the third quarter of 2019 (3Q19) after due diligence.

“The signing will take at least two to three months. Today, we are still in discussion. The definitive binding agreement can only happen upon signing. Then, we expect all the approvals within six to nine months.

“So, it will be roughly the middle or 3Q20 before the merged entity is created,” Jamaludin (picture) stated.

Meanwhile, the proposed merger of Celcom and Digi will have a pro forma revenue of around RM14 billion, Ebitda of some RM5 billion and an estimated 21 million total customers, plus the biggest share of the domestic revenue market at 35%.

Jamaludin promised that “there will be no retrenchment” under the deal, as discussed together with Brekke.

“We’re setting up a regional innovation centre that will easily have over 100 people doing innovation alone. So, there will be a lot of opportunities and we will give them opportunities voluntarily,” he said.

Jamaludin said Celcom will be indirectly injected into Digi, although he said the exact mechanics of the deal — whether done through a share swap or other means — have yet to be determined.

Sovereign wealth fund Khazanah Nasional Bhd, which controls a majority stake in Axiata, has approved the deal, according to Jamaludin.

He did not dismiss the possibility of the proposed mega merger — which both telcommunication companies are touting as a “merger of equals” and the largest merger of the century in Asean and South Asia — triggering industry-wide consolidation.

“We have done analyses of everywhere in the world. In almost all countries, there should be three operators. I believe in three operators and two networks. Too many is very bad, there’s no way you can innovate.

“Too few — there’s no competition. This (the merger) could turn us (Malaysia) back into a three-player industry. In other similar countries, they might be hopefully inspired by our merger and there should be more mergers coming across the whole region,” he stated.