PETALING JAYA: Axiata Group Bhd
and Indonesia’s conglomerate Sinar Mas Group have agreed to merge their Indonesian telecom units, PT XL Axiata Tbk (XL Axiata) and PT Smartfren Telecom Tbk (Smartfren).
The combined entity, called PT XLSmart Telecom Sejahtera Tbk (XLSmart), will have an enterprise value of US$6.5bil.
The deal, concluding over three years of negotiations, will see XLSmart serve a combined subscriber base of approximately 94.5 million, capturing around 27% of the Indonesian market share.
In a statement, Axiata and Sinar Mas said they will become joint controlling shareholders, each holding a 34.8% stake in XLSmart and with “equal influence over its strategic direction and decisions.”
Upon completion, the shareholding equalisation will result in Axiata receiving up to US$475mil, with US$400mil paid at transaction closing and an additional US$75mil after the first year, contingent upon meeting certain conditions.
Axiata said the funds will go towards paring down debt, bringing its gearing ratio down to 0.86 times from 1.31 times as at Dec 31, 2023. After the merger, Axiata said it would operate in markets with a three-player structure, where it will hold over 25% market share.
“By combining the operational resources and infrastructure assets of XL Axiata and Smartfren, XLSmart will benefit from significant cost efficiencies and improved economies of scale,” the joint statement by both companies noted.
The merger is expected to generate annual pre-tax cost savings of US$300mil to US$400mil, “enhancing profitability and supporting reinvestment into critical areas such as 5G expansion, customer experiences, and network connectivity, contributing to long-term sustainable growth.”
“This merger brings together complementary capabilities to create a robust entity serving a significant portion of Indonesia’s telecommunications market,” it added.
Following the merger, XLSmart will have “the scale, financial strength, and expertise to drive investments in digital infrastructure, expand service coverage, and foster innovation, while delivering sustainable value for stakeholders.”
Axiata group chief executive officer Vivek Sood said the merger is “an important step in laying the foundation for a robust digital economy.”
“It will allow us to cater to the unique infrastructure demands of the Indonesian archipelago by providing a scalable platform that will enhance service coverage, product offering and quality of network experience. Synergies derived from merger will improve shareholder value and will be partly reinvested in future growth opportunities,” he said.
This merger follows similar successful consolidations by Axiata in other markets.
In Malaysia, the merger of Axiata’s Celcom and Telenor Asia’s subsidiary Digi in 2022 created the nation’s largest mobile telco, delivering significant value and operational synergies.
Similarly, in Sri Lanka, the merger of the largest telecommunications service provider Dialog Axiata and Airtel earlier this year bolstered Axiata’s market presence, uniting 17 million Dialog subscribers with five million Airtel users to unlock new growth opportunities. Meanwhile, in Bangladesh, the merger of Robi and Airtel in 2016 also had increased the customer base and continues to deliver profitable growth.
“XLSmart will be a powerful platform to deliver enhanced connectivity, foster digital inclusion, and bridge the digital divide for communities across the country.
“XLSmart’s priorities will be on ensuring a stable market environment, maximising merger synergies and driving profitable growth,” Vivek said.
He said the companies could decommission sites in the 20% to 30% of the network where their operations overlap, which would allow the combined group to refocus expansion on profitable targets.
No layoffs are expected in the short term following the merger.
“We are confident that XLSmart will be well-positioned to thrive in Indonesia’s dynamic digital economy,” he added.
Meanwhile, the telcos said XLSmart will also have the resources to support the Indonesian government’s agenda for a connected, inclusive digital economy, creating opportunities for individuals, businesses, and public sector entities to thrive in the digital era.
“Uniting two of Indonesia’s most trusted telecommunications operators with further market consolidation will foster a healthier competitive environment and advance the nation’s digital transformation agenda through enhanced services, improved network quality, and greater capacity for innovation,” the statement said.
With the the combined financial and operational capabilities, XLSmart will also be in a better positioned to compete with larger players to capture market share, improve revenue streams, and drive shareholder value.
Assuming all regulatory approvals and conditions are met, the merger is expected to be completed in the first half of 2025.
XLSmart is then projected to deliver pro forma revenues exceeding US$2.8bil and earnings before interest, taxes, depreciation and amortisation of over US$1.4bil.
The estimated annual run-rate pre-tax synergies is seen at US$300mil to US$400mil post integration completion.
