Friday, 10 May 2019

Telenor-Axiata Merger expected




According to recent reports Telenor, the Norwegian telecoms operator is proposing to merge its Asian assets with those of Malaysian rival Axiata, creating a group with 300m customers from Thailand to Indonesia. 


The merged group would have $13bn in annual revenues and be the biggest telecoms operator in south-east Asia while the deal would be one of the largest transactions on the continent outside of China or Japan. 


Telenor would own 56.5 per cent of the combined entity while Axiata, whose main shareholder is the Malaysian sovereign wealth fund, would hold 43.5 per cent under the proposed deal, which would involve no cash changing hands. 


Telenor, majority-owned by the Norwegian government, has sold off a number of stakes in central and eastern Europe as it seeks to concentrate on the Nordic and Asian regions after being embroiled in a damaging bribery scandal in Russia. They agreed to buy a majority stake in Finnish telecoms challenger DNA last month for €1.5bn, and makes more than half of its revenues from Asia. 


Telenor and Axiata said they both expected cost savings of $5bn from the proposed merger but gave no breakdown as to how and when they would be achieved. The merged company could take part in regional consolidation and would operate about 60,000 towers across Asia with earnings before interest, tax, depreciation and amortisation of about $5.5bn before any synergies. 

Both companies hope to conclude the deal in the third quarter of 2019 after approval by regulators and shareholders. The new company would have its headquarters in Kuala Lumpur and be listed on the Malaysian stock exchange as well as an unnamed international market.


Johor Bahru Internet Exchange chief peering officer Weng Yew Wong said the product rationalisation from the potential merger may lead to reduction of choices and available packages for consumers.

Weng said the potential merger was nothing but a financial rationalisation exercise.


He explained that given the upcoming 5G capital expenditure and the fact that many of the operating markets are fast becoming mature and saturated, the fastest way to deliver shareholder value was to cut cost by merging operation and combining forces. According to Weng: 



“Usually price drop will only be realised when a new player is introduced into the market. It is unlikely that there will be any drastic change in the broadband pricing as a result of the reduction in the number of player in the market.” 

Telenor’s Asian footprint includes Thailand, Malaysia, Bangladesh, Pakistan and Myanmar. Axiata has operating companies in Malaysia, Bangladesh, Cambodia, Nepal, Sri Lanka and Indonesia, and the tower business edotco. Pro-forma revenue and pre-synergy EBITDA of the combined entity is approximately USD 13 billion (around NOK 113 billion) and USD 5.5 billion (around NOK 48 billion). Axiata’s mobile operations in Bangladesh, Robi, will continue to be separately and independently managed by Axiata.


The merger will mean the new company will have operations in nine countries with a total population of close to one billion people. They will have close to 300 million customers and become one of Asia’s largest mobile infrastructure companies operating approximately 60,000 towers across Asia. The merged company will have its operational headquarters in Kuala Lumpur with the majority of functions and is planned to be listed at an international stock exchange as well as on Bursa Malaysia. 


The two companies’ Malaysian businesses — Celcom for Axiata and Digi for Telenor — would also be merged, creating the company’s largest mobile operator.


The user base of  Celcom, as of December 2018 was 9.08 million mobile subscribers. Digi on the other hand still has 11.25 million subscribers despite a significant decrease in numbers last year. If we combine Celcom’s numbers with Digi’s numbers in a post-merger scenario that is still a user base of over 20 million, which is more than half of Malaysia’s population of roughly 31 million. 

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