Axiata, Telenor seal US$15b deal to form Malaysia's biggest mobile operator

Kuala Lumpur

MALAYSIAN telecoms firm Axiata Group and Norway's Telenor will merge their mobile operations in Malaysia in a US$15 billion deal, forming a new market leader in the competitive South-east Asian nation.

The companies had said in April that they were in advanced talks to merge Celcom Axiata and DiGi.Com, and each party would own 33.1 per cent of the combined firm.

"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," Izzaddin Idris, president & group CEO of Axiata, said in a statement on Monday.

The union of the country's second and third largest mobile services providers will create a company estimated to have an annual revenue of US$3 billion, with core profitability of US$1.4 billion from a subscriber base of about 19 million, Axiata and Telenor said in a joint statement.

The merged entity, Celcom Digi Bhd, has a "pre-synergy" equity value of nearly RM50 billion (S$16.2 billion), the companies said. It will remain listed in Kuala Lumpur, in line with a preliminary agreement announced in April.

Two sources familiar with the deal said the implied US$15 billion enterprise value of the combined firm was based on Digi's share price of RM4.18 as of Friday. Digi's shares rose 3.4 per cent on Monday to take its valuation to US$8.1 billion.

The deal comes at a time when mobile operators are facing pressure on profits in a challenging industry environment. Celcom Digi's main competitor would be the current largest telecoms operator in the country, Maxis.

The transaction, subject to regulatory and other approvals, is expected to be completed by the second quarter of 2022.

As a result of the deal, the companies plan cost cuts and savings on capital expenditure with a net present value of about US$2 billion, Telenor said in a statement.

Axiata said it entered into the agreement with Digi, where 100 per cent equity interest of Celcom Axiata would be transferred to Digi for a total consideration of RM17.76 billion.

Digi said the merger would result in Axiata receiving newly issued shares in Digi and a cash consideration of RM1.7 billion from Digi as new debt in the merged company. "As part of an ownership equalisation in Digi under the terms of the merger, Axiata will also receive close to RM300 million from Digi's largest shareholder Telenor," it said in a statement.

Axiata said last Tuesday that it hoped to seal the merger within days or a week, having completed due diligence.

Morgan Stanley was the sole international adviser to Axiata on the deal, while Citi advised Telenor. REUTERS