A merger of equals

Datuk Izzaddin Idris, President and Group CEO of Axiata Group (left) and Jorgen C. Arentz Rostrup, Exec. Vice President and Head of Telenor Asia (right) hold a press conference Thursday to brief the media on their talks. - CHAN TAK KONG/The Star

KUALA LUMPUR: The once-failed merger talks between Axiata Group Bhd and Norway’s Telenor ASA is back and the sweetener in the deal this time to make it more palatable is an equal shareholding of 33% by both parties.

This is a far cry from the 56.5:43.5 ratio that had been proposed in the last merger of equals in May 2019 with Telenor taking the lead to create a regional giant. However, too many hurdles saw that merger falling through.

This time around the scale of the merger is smaller and limited to only the Malaysian operations, between Axiata’s wholly owned unit, Celcom Axiata Bhd, and Telenor’s 49% unit, Digi.com Bhd, to create a merged unit, to be known as Celcom Digi Bhd (CDB).

Yesterday both parties announced they were in advanced discussions to merge their local mobile units. Both Axiata and Telenor will hold a 33.1% stake each in CDB.

The rest of the stake will be held by the Employees Provident Fund (9.8%), Permodalan Nasional Bhd (7%), KWAP (2.4%) and the public (14.6%), with the listed status of Digi being transferred to CDB.

This confirms a StarBiz report titled “Celcom-Digi merger may be on the cards again’’ (pic) which had appeared on March 6.(pic above)

“We are keeping the brands as they merge. The merger will generate significant synergies and attract global partnerships. The merged entity will be among the top five listed companies by market capitalisation, ’’ Axiata president and group CEO Datuk Izzaddin Idris said at a press conference yesterday.

Executive vice-president and head of Telenor Asia Jorgen C Arentz Rostrup added that “it was a good match’’ and with the telecoms landscape changing rapidly, content is significant and size does matter.

Why the change in heart to push for a merger the second time around may be puzzling and the executives at the press conference declined to state reasons why it had failed in the first place.

But they did name top executives lined up for CDB, which were said to be the many points of contention of the previous merger, as was the controlling shareholding that was going to Telenor then.

Izzaddin and Jorgen will be the chairman and vice-chairman of CDB, while existing Celcom CEO Idham Nawawi and Digi CEO Albern Murty will be the CEO and deputy CEO of CDB respectively.

The changing mobile landscape may also be a factor that pushed them to merge, those familiar with the deal said.

They said mobile players will no longer have new spectrum for growth in the future and their reliance is only on a common network thereby reducing them to service providers.

In view of that, these mobile players can no longer remain as they are, but turn into converged players and differentiate themselves to compete not just with local players but over-the-top (OTT) players, some of which are global giants, they said.

When asked how confident Axiata and Telenor were of succeeding this time around, Izzaddin said “things happen for a reason, ’’ and all parties should look forward to this new merger deal that will focus not just on a regional standpoint but also on the global front.

As part of the deal, Axiata will get new shares in Digi representing a 33% stake and a cash equalisation amount of RM2bil. Of this, RM1.7bil will be from Digi as it will take on new debt and the balance RM300mil from Telenor.

The valuations of CDB were not revealed yesterday but the merger will create the largest telco in the country and some view this as anticompetitive.

CDB will have over a 60% market share of consumers, totaling over 19 million. CDB’s revenue market share will rise to 37%, whereas that of Telekom Malaysia Bhd will be 32%, and Maxis Bhd 27%.

Yesterday both companies conducted town halls to explain the merger details. Celcom has 2,400 employees and Digi 1,400.

Izzaddin assured there will be no job cuts and that overlapping positions will be retrained and reskilled.

Asked if the proposed merged was a prelude to Axiata and Telenor merging some of their other Asian units, Izzaddin said “no consideration for future mergers”.

Will this merger be the exit strategy for Telenor?

Jorgen said “on the contrary the merger will ensure that Telenor puts more effort in working relentlessly in Asia. We are very dedicated in Malaysia and Asia in general.’’

The parties expect to sign a definitive agreement in one to two months’ time and the merger is expected to be completed within seven to nine months. Shares of Axiata and Digi were suspended at mid-day yesterday. Axiata closed at RM3.80 while Digi, RM3.75 a share with a market cap of RM29.1bil.

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Axiata , Telenor , Digi , Celcom , merger ,


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