Celcom and Digi will merge to become Malaysia’s largest mobile operator

Axiata has just announced that they are currently in discussions with Norwegian Telenor Group to established a new merged global entity by combining Axiata and Telenor’s Asian operations. The merger aims to create a new global champion that will be headquartered in Malaysia.

According to the announcement, the parties have indicated that there’s no certainty that the proposed transaction will result in any binding agreement or obligations on the parties to proceed with any acquisition, merger or divestment. They added that several issues and matters have yet to be determined and agreed upon, giving the mutual due diligence to be undertaken shortly involving several entities across nine countries, Axiata has opted for an early voluntary disclosure to provide transparency to its shareholders as discussions progress.

This indicates that the merger process is still in its early stage and the announcement shows that they are serious in making this happen. According to Axiata, the industry has seen significant shifts in industry structure whereby the distinction between fixed and wireless services is blurring towards convergence. They also acknowledged that market competition continues to intensify beyond traditional players but also from internet-based service and content providers.

In addition, prices for products and services have steadily fallen in the past years while capital expenditure continue to rise, especially when it comes to network, quality coverage and advanced technology. The proposed transaction that will enable a merged entity with Axiata and Telenor’s operations will offer a combination of scale, competencies and vast experiences in leading and managing emerging and frontier markets.

With the merger, it is expected that the new entity will have a proforma revenue of more than RM50 billion and EBITDA of more than RM20 billion. This will cover operating subsidiaries in nine countries with a combined population of more than 1 billion people and 300 million customers. With the current controlled portfolio, the operations will comprise of six countries with number 1 positions, two countries with number 2 positions and one market with third position. Interestingly, Axiata’s Robi operations in Bangladesh will continue to be managed independently by Axiata after the proposed transaction is completed.

For Malaysia, they will create a true Malaysian Champion by merging both Celcom Axiata Berhad and Digi.com Berhad, which will in turn become the largest mobile operator in Malaysia. In addition, the proposed transaction will form a top five mobile infrastructure player when it combines edotco Group Sdn Bhd, which is currently the 13th largest TowerCo globally, with Telenor’s Asian tower assets.

The merger will also create the opportunity to establish the largest Innovation Centre in the Region which will cover IoT and 5G, as well as a Global Talent Factory.

According to the announcement, Telenor will become the majority shareholder of the merged entity with 56.5%, while Axiata will own 43.5%. This is the preliminary shareholding that reflects the relative asset valuation subject to adjustments and due diligence. Both parties will work in good faith towards a binding agreement by end of Q3 2019. Morgan Stanley is acting as the International Financial Advisor to Axiata on the proposed transaction.

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