MCMC to review proposed Axiata-Telenor Asia ops merger

The merger has prompted concerns of a monopoly as Celcom and Digi are 2 of the country’s ‘Big 3’ telcos


The proposed merger of Axiata Group Bhd and Telenor ASA’s Asian operations, which will create a giant firm valued in the billions, will be scrutinised by the country’s telecommunication authority.

Axiata and Telenor’s proposed merged entity will create the country’s largest cellular operator with 21 million handphone subscribers in Malaysia and 267 million customers in nine countries.

The proposed non-cash merger will merge Axiata’s Celcom Axiata Bhd and Telenor’s Digi.Com Bhd to create Malaysia’s largest mobile operator. The move, however, has prompted concerns of a monopoly as Celcom and Digi are two of the country’s “Big 3” telcommunication companies (telcos), alongside Maxis Bhd.

“The Malaysian Communications and Multimedia Commission (MCMC) is always open to initiatives by the industry. In this case, the parties have informed us and due process to evaluate all angles of the proposal will be carried out,” MCMC chairman Al-Ishsal Ishak told The Malaysian Reserve.

He said the MCMC will only give the green light for the deal “after a thorough review” although no definitive timeline has been set for the evaluation.

“This process will take a few months. We need to evaluate many angles, and have data to back our final position,” he said.

If successful, the non-cash merger will see the establishment of a new merged global entity with pro forma 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.

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

Telenor is expected to own 56.5% of the enlarged entity and will have the right to appoint its CEO, while Axiata will hold a 43.5% stake and have the right to appoint the chairman.

The expected 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 — about two-thirds of the country’s population.

At a press briefing in Kuala Lumpur on Monday, Axiata president and group CEO Tan Sri Jamaludin Ibrahim acknowledged that a Celcom-Digi merger would command over 50% of Malaysia’s mobile market.

However, he stressed that this would not be a monopoly as the merged entity’s market share in the converged space would only amount to about 35%.

Jamaludin added that the new company would be able to provide affordable pricing, better quality and improved coverage, although he could not guarantee lower product prices.

Telenor CFO Jorgen C Arentz Rostrup said in a conference call on Monday that the group expects Malaysia’s competition authorities to approve the deal without too many remedies, Bloomberg reported.

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

Axiata and Telenor will work towards finalising agreements in relation to the proposed transaction by the third quarter of 2019, following related due diligence.

Hong Leong Investment Bank Bhd in a note yesterday deemed the proposed deal positive, “but not without regulatory risks and business conflicts”, with Axiata expected to gain more although Digi would also benefit over the long term.

“The combination of Celcom and Digi will lead to the largest telco with revenue and subscriber market share of 35% and 47% respectively, and potentially attract scrutiny from the perspective of anti-competition.

“Together, they will also hold 43% of the operating TDD (telecommunications device for the deaf) airwave in the market and there are uncertainties surrounding how MCMC will handle spectrum distribution upon the merger,” it said.

Kenanga Investment Bank Bhd and JF Apex Securities Bhd are also positive on the proposed deal with JF Apex saying MCMC would have to decide whether the Celcom-Digi merger would “curtail competition based on its Guideline on Substantial Lessening of Competition 2014”.

Axiata Digital Services Sdn Bhd, Robi Axiata Ltd in Bangladesh and Idea Cellular Ltd in India are excluded from the deal.

Shares of Axiata soared 14.85% to close at RM4.64 yesterday, giving the company a market capitalisation of RM42.12 billion.

Digi jumped 6.19% to close at RM4.80, valuing the telco at RM37.32 billion. The stock surged as much as 9.1% during the morning session, its biggest jump since October 2010.