Axiata Group and Norway’s Telenor have agreed to combine their mobile operations in Malaysia to create a 50 billion ringgit ($12 billion) telecom giant in the Southeast Asian nation.
The combination of their telecom arms–Celcom Axiata and Digi.com–will create Malaysia’s largest mobile operator with a combined subscriber base of 19 million and annual revenue of 12.4 billion ringgit, Axiata and Telenor said in a joint statement.
According to a report by brokerage firm Nomura, the merged entity will have a market share of about 43.7%. That would make the company the new market leader, overtaking billionaire Ananda Krishnan’s Maxis.
“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,” said Izzaddin Idris, President and Group CEO of Axiata.
Axiata and Telenor will each own 33.1% of the combined entity, which will remain listed on Bursa Malaysia. Initial estimates expect the merged company to generate synergy savings of 8 billion ringgit, and a free cash flow of 4 billion ringgit.
The transaction, which is subject to regulatory approvals, comes at a time when mobile phone operators in Malaysia are faced with a challenging business environment brought on by intense competition and the economic impact of the Covid-19 pandemic.
Digi.com posted a 14.7% decline in net profit in 2020 from the previous year, while Axiata’s net profit for last year plunged 75% year-on-year due to write-down of assets.
“The group would benefit from cost synergies due to enlarged operations, with the merged entity being the leading wireless operator in Malaysia,” Nomura said in a research note. The brokerage added that the merger would unlock the value of Celcom, as it could leverage on Telenor’s proven expertise in cost management.
To tap into Malaysia’s growing digital economy, the combined entity plans to invest 250 million ringgit in the next five years to build an innovation center in Kuala Lumpur. The center will develop 5G applications, support local startups and nurture knowledge-based workers.
“The telecom industry is at the beginning of an exciting digital shift, and new technologies are going to change how we develop and deliver services for both the private and public sector,” said Jørgen A. Rostrup, Executive Vice President and Head of Asia in Telenor Group.
“With this merger we bring together competencies, financial strength and scale to go beyond connectivity and implement technology that further advances our customers digital experience.” source: Forbes