Rescuing a mega merger


  • Corporate News
  • Tuesday, 20 Aug 2019

Axiata and Telenor still pushing for it despite the complexity

PETALING JAYA: Moves to salvage the Axiata Group Bhd and Telenor ASA Asian asset merger are proceeding as it seems to have hit a snag.

Those in the know claimed both parties are still trying to push for the merger to happen, given the challenges in the industry and the fact that size matters in an ever-changing landscape.

Both have to make it value-accretive and some compromise will have to be made if they want a win-win deal, as this merger cannot be seen to benefit one party more than the other when the initial goal was to have a “merger of equals.’’

Some sources claimed the parties might have to re-look the valuations of the assets now that there is talk that Axiata’s tower business held via edotco Group Sdn Bhd is said to be worth US$3bil.

The amount is higher than the earlier valuations when the Axiata-Telenor merger was announced.

Would it mean that with the higher valuations, Axiata’s stake in the MergedCo would be higher to reflect the concept of a merger of equals?

A report by Bloomberg yesterday said Axiata had received preliminary expressions of interest for the takeover of edotco, but there has been no discussion thus far.

But if the Telenor-Axiata merger takes place, the combined tower company would become the fourth or fifth-largest globally.

The other factor that could potentially break the deal is the Indonesian operations, as the failure to get the blessings of the Indonesian authorities would set the merger back.

Indonesia has said it would have to conduct a review as to whether to allow Telenor into the market place, given that it originates from the European Union, whose Parliament had on June 10 passed laws to restrict and ban palm oil usage in biofuel by 2030.

“If that happened, would Telenor still be interested in the merger? There is no denying that Telenor is keen on Indonesia – South-East Asia’s most populous market.

“It missed the growth opportunity in India by exiting from that market. It is looking for growth and Indonesia is poised for it.

“Would it still bet on the deal if there was no Indonesia in the equation?’’ asked a source.

Telenor has no assets in Indonesia, while Axiata has a 66.4% stake via PT XL Axiata Tbk, Indonesia’s second-largest player.

Axiata and Telenor announced a merger of their telecoms and infrastructure assets in Asia in May to create a pan-Asian giant.

A due diligence is underway and the planned signing is sometime in September.

However, given the complexity of the merger, both parties have not been able to come to a compromise, claim some sources, even though others said it “is all going smoothly”.

Both Telenor and Axiata have remained silent.

A merged company (MergedCo) is to be created in which Telenor is supposed to hold 56.5% and Axiata, 43.5%.

This is based on the valuations of assets just before the merger announcement.

Apart from that, Axiata’s local unit, Celcom Axiata Bhd, and Telenor’s unit, Digi.com Bhd, are to merge to create the biggest local mobile company (MalaysiaCo) ahead of rival Maxis Bhd.

It is also no secret that Telenor has had its eyes on Celcom since early 2002.

In fact, its unit, Digi, has had working partnerships with Celcom for a long time and giving it a larger market share is what it wants given the pressure it is facing on the home turf and its shareholders demanding more dividends.

UOB Kay Hian Malaysia Research in a report said: “We take the view that the parties will sign a definitive agreement by Sept 19. We understand that key internal compliance issues – which were supposed to be the bigger stumbling block for the entities – have been agreed upon last week.

“Now, both sides of the management are conducting interviews for key appointments within the MergedCo.

“Importantly, we understand that the MalaysiaCo CEO will be a Malaysian, but the MergedCo CEO will be a Telenor appointee, ’’ UOB Kay Hian said.

The share prices of Axiata and Digi fell yesterday after reports emerged that the deal had hit a snag. Axiata fell 13 sen to RM4.89, while Digi was down five sen to RM4.97.

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Axiata , Telenor , Digi , merger , valuations , Indonesia , UOB Kay Hian ,

   

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