After flagging discussions about a potential merger in April, Malaysian telco conglomerate Axiata Group and Norwegian telecommunications provider Telenor have finally signed on the dotted line, paving the way for the merger of their respective Malaysian mobile operations, Celcom and Digi.
The companies said on 21 June they had successfully concluded due diligence and signed the transaction agreements for the proposed merger of Celcom Axiata and Digi, which for merger purposes will come together as ‘MergeCo’. Once the combination is complete, Celcom and Digi will become Celcom Digi Berhad.
The signing signifies a confirmation of the intent to establish what the companies jointly describe as a “commercially stronger and more resilient digital converged service provider, and leading Malaysian telecom operator positioned to drive Malaysia’s digital ambitions”.
The MergeCo entity will, on a pro forma basis, serve an estimated 19 million customers and claim revenue of RM12.4 billion, pre-tax earnings (EBITDA) of RM5.7 billion and after-tax profit of RM1.9 billion.
The deal sees Axiata and Telenor become equal partners in the group, with a 33.1 per cent ownership stake each in MergeCo, which will continue to be publicly listed on Bursa Malaysia.
Indeed, it is hoped the united entity will be among the five largest companies listed on Bursa Malaysia – in terms of market capitalisation, MergeCo is valued at a combined ‘pre-synergy’ equity value of close to RM50 billion.
The deal has been structured in such a way that Axiata and key Malaysian institutional shareholders are expected to own more than 51 per cent of MergeCo at completion – a key consideration from the aspect of Malaysia’s national interests.
Axiata and Telenor have jointly reiterated their commitment to protect employee welfare with no forced retrenchments. In fact, the MergeCo entity is slated to create opportunities for staff to continue to develop across functions, build new competence and be part of future growth of the merged company.
Amid promises of employee welfare during the combination of the businesses, the two companies have made no secret of the synergies they hope to see, post-integration. Initial estimates indicate potential value accretion through cost and capex synergies of around RM8 billion on a net present value basis, the companies said.
The unified MergeCo will also aim to make an investment of up to RM250 million over five years in building a “world-class” innovation centre in Kuala Lumpur, with the aim of helping to "catalyse" the fourth industrial revolution digital transformation, strengthening the local ecosystem and keeping Malaysia at the forefront of the global digital evolution.
The innovation centre will conduct extensive research and development, develop 5G use cases, support local digital startups and provide a platform to nurture the creation of a knowledge-based workforce.
Broadly, it is hoped that the joining of the companies into the MergeCo entity will see the combination of the scale, experience, competencies and financial strength of both global telco groups with the market knowledge of two well-established local companies.
The companies claim MergeCo will have the capabilities to leverage technology advancements and attract global internet-based partnerships to deliver a wider range of innovative solutions to its customers.
Moreover, it is anticipated the company will be well-placed to fuel the implementation of digital technologies at a time when 5G, internet of things (IoT), artificial intelligence (AI) and cloud computing are coming together to accelerate digitalisation across all reaches of society.
“We are charting good progress in the ongoing merger exercise with Telenor and Digi and remain aligned in our intentions to deliver a strong value proposition that will enable our customers to participate more confidently as the nation transitions towards a digital economy,” said Dato’ Izzaddin Idris, Axiata president and group chief executive officer.
“We look forward to delivering better value and choices to benefit society, especially in bridging the divide in rural areas and assisting the Home and Enterprise businesses take advantage of new opportunities in this digitally accelerated environment.
“Assuming a smooth transition, post integration period, we are expecting to see improvement in EBITDA and cashflow margins in the combined entity in step with our ongoing commitment to maximise dividend payout for our shareholders,” he added.
As flagged in April, Axiata and Telenor have agreed to nominate Dato’ Izzaddin Idris as chair of the combined business, Jørgen C. Arentz Rostrup as deputy chair, Idham Nawawi as CEO and Albern Murty as deputy CEO of MergeCo, subject to MergeCo’s shareholders’ approval.
Completion of the transaction remains subject to the approval of both Axiata and Digi shareholders, regulatory approvals and other customary terms and conditions.
If all goes to plan, the proposed merger is expected to be completed by the second quarter of 2022.