KUALA LUMPUR: Two rivals – Axiata Group Bhd and Norway’s Telenor ASA – are proposing to combine their assets in Asia and South Asia to create a telecoms giant to weather tough market conditions with scale and synergy.
This non-cash deal will see them creating a new company with over 300 million customers by merging mobile assets in nine countries, including Malaysia (both Celcom Axiata Bhd and Digi.com Bhd), tower assets and innovation centres.
The new company will have an annual proforma revenue of more than RM50bil, earnings before interest, taxes, depreciation and amortisation (EBITDA) of about RM20bil and a net profit of RM4bil. The merger will cut redundancies and generate cost savings or “synergies’’ of about US$5bil annually.
Telenor will be in the driver’s seat of the new company with a 56.6% equity stake, while Axiata will end up with 43.5%. The percentage is based on the value of assets that both groups hold.
“We have been talking for a long time but what attracted us to the deal is that it would be a merger of equals,’’ said Axiata Group president and CEO Tan Sri Jamaludin Ibrahim at a press conference to announce the proposed merger.
Calling it a merger of equals, Jamaludin said it meant that both companies would benefit from the combination of their people, assets and expertise.
For the consumer, Jamaludin said the deal would be beneficial in terms of a better and larger network, quality broadband services and affordable prices.
With the merger of Celcom and Digi, it also reduces the big players from three to two and several smaller players dotting the industry. Experts believe the merger could potentially reduce competition for consumers and give the new, larger entity more pricing power.
However, Jamaludin believes a three-player environment is ideal for competition and expects more such mergers in the future in the region.
As for its tower business via edotco, Axiata’s aspiration has been to create a top-five global company and the merger creates that. Combining the towers of both companies places edotco as the fourth-largest tower company with over 80,000 towers globally.
Jamaludin said both parties would also invest RM100mil annually to build an innovation centre.
Dubbed as the mega-merger of telecoms assets, it is seen as the largest in this century within this region. Some, however, are already worried about job cuts as it happens with mergers.
Jamaludin was quick to say “there would be no retrenchments”.
“We are not forcing people out. We want to protect the welfare of our people. In fact, we will be creating jobs at our innovation venture,’’ he said.
That aside, “voluntary job cuts via voluntary separation schemes could be an option”.
Axiata has 12,000 people across its entire network while Telenor has 13,000 people, including Bangladesh. The deal does not include their operations in Bangladesh.
Telenor has been an investor in Digi with a 49% equity stake for a long time. When asked if this was its exit plan from Digi, Telenor president and CEO Sigve Brekke replied “no”.
“We have been in Asia for 20 years. With this deal, we are expanding together with Axiata here and our presence in Asia. We see tremendous opportunity to continue to drive our (business) in the Asian market,” Brekke said.
As the telecoms sector evolves with social media being a new communication channel, companies like Telenor and Axiata are positioning themselves to be more than just telecoms players. They want a slice of the content market too, which is a costly affair and hence the merger helps them use their capex without much duplication. This explains why Jamaludin and Brekke are talking about “creating a global champion’’ with size, scale and synergies.
AmInvestment Bank in its report said that “overall, we would be positive if this deal materialises, as this could reduce the number of competitors, effectively enabling the merged entity to leapfrog to the top position in terms of market share in countries which are involved in the merger’’.
Both parties are expected to sign a final agreement by the third quarter of this year, but completion of the deal would only be sometime in the middle of next year. While both parties are keen to merge their assets, they also added that there is no certainty that the discussions would result in an accord.
The eventual aim is to list the new company on Bursa Malaysia and an international exchange. As for Digi/Celcom and Axiata, they will remain listed on Bursa.
Asked why Axiata did not explore a merger with TELEKOM MALAYSIA BHD (TM) since fibre is the way to go and TM has plenty of it, Jamaludin said TM would have solved its one country issue but with Telenor, it could do the same in several countries.
Axiata has operations in six countries: Malaysia (100% equity in Celcom), Indonesia (XL 66.36%), Sri Lanka (Dialog 83.32%), Nepal (Ncell 80%), Cambodia (Smart 72.48%), Bangladesh (Robi 68.9%) and India (Idea Cellular 8%).
Telenor has a 49% stake in Digi and stakes in dtac Thailand, Telenor Myanmar, Grameenphone Bangladesh and Telenor Pakistan.