Malaysian telecoms firm Axiata Group Bhd and Norway’s Telenor ASA will consolidate their mobile operations in Malaysia in a $15 billion deal, forming a new market leader in the highly competitive Southeast Asian country.
The companies had said in April they were in cutting edge discussions to merge Celcom Axiata Bhd and DiGi.Com Bhd and each group would possess 33.1% of the consolidated firm.
“Given a smooth transition, post reconciliation period, we are hoping to see improvement in EBITDA and cashflow margins in the consolidated entity in sync with our continuous obligation to maximize dividend payout for our investors,” Izzaddin Idris, president and group CEO of Axiata, said in a statement on Monday.
The merger of the country’s second and third biggest mobile operations firms will create a company assessed to have yearly income of $3 billion, with core profitability of $1.4 billion from a subscriber base of around 19 million, Axiata and Telenor said in a joint statement.
The consolidated entity, Celcom Digi Bhd, has a “pre-synergy” equity value of almost 50 billion ringgit ($12.1 billion), the companies said. It will stay listed in Kuala Lumpur, in accordance with a preliminary understanding announced in April.
Two sources familiar with the deal said the inferred $15 billion venture worth of the consolidated firms was dependent on Digi’s share price of 4.18 ringgit as of Friday. Digi’s shares rose 3.4% on Monday to take its valuation to $8.1 billion.
The deal comes when mobile operators are facing pressure on profits in a difficult industry climate. Celcom Digi’s fundamental rival would be the current biggest telecoms operators in the country, Maxis Bhd.
The deal, subject to regulatory and other endorsements, is expected to be concluded second quarter of 2022.
Because of the arrangement, the companies plan to cut cost and savings on capital expenditure with a net present value of about $2 billion, Telenor said in an explanation.
Axiata said it went into the deal with Digi, where 100% equity interest of Celcom Axiata would be transferred to Digi for an absolute consideration of 17.76 billion ringgit ($4.3 billion).
Digi said the consolidation would bring about Axiata getting newly issued shares in Digi and cash consideration of 1.7 billion ringgit from Digi as new debt in the merged company.
“As a component of ownership equalization in Digi under the provisions of the consolidation, Axiata will likewise get about 300 million ringgit from Digi’s biggest investor Telenor”.
Axiata said last Tuesday it would have liked to seal the consolidation within seven days, having concluded due diligence.
Morgan Stanley was the sole global advisor to Axiata on the deal, while Citi advised Telenor.
