Telenor and Axiata get Malaysia merger green light but with conditions

Telenor and Axiata Group have received regulatory approval for their proposed merger in Malaysia, which they now expect to complete in the second half of this year.

It is almost a year to the day since the two telecoms groups signed on the dotted line to merge their operating subsidiaries in Malaysia – Telenor’s Digi and Axiata’s Celcom. The telcos won over the Malaysian Communications and Multimedia Commission (MCMC) with a series of pledges designed to address the regulator’s competition concerns.

They have agreed to divest 70 MHz of the merged outfit’s spectrum holdings across the 1800 MHz, 2.1 GHz and 2.6 GHz bands, the first of which will be returned to the MCMC within two years of the deal’s completion and the last two bands to be handed back within three years. The telcos will also establish an independent business unit for Celcom Digi’s MVNO wholesale business within six months of the merger closing and will ensure that they continue to offer wholesale services to virtual players at the same terms they currently provide.

The companies will also be required to sell off Celcom’s Yoodo sub-brand. Yoodo offers retail mobile plans to consumers and is euphemistically described by Celcom as its lifestyle brand.

Finally, the merged entity has committed to certain distribution arrangements and to creating a single brand identity within two years.

It’s all pretty standard stuff from a regulatory point of view. Market watchers will be keen to see what happens to Yoodo, which appears to be a fairly strong brand locally – no doubt due to its low-cost prepaid offers – and could prove a valuable asset to another market player. However, the regulator has made provision for the eventuality that the telco might not find a buyer.

In a statement outlining its conditions on the merger, the MCMC said it expects the merged entity to sell Yoodo within 18 months of the deal’s completion. Should it fail to do so, it has three months to wind down the operation.

The MCMC appears to be giving Telenor and Axiata plenty of time to adhere to its requirements. That said, the process to date has been pretty slow.

Telenor and Axiata famously made a first attempt to join their Malaysian businesses in May 2019, but later that summer called off the deal, without rally explaining why. There were “some complexities” in the proposed transaction, they said. As such, in April last year, when we first heard that the pair were back round the table with the same goal in sight, there was naturally some scepticism over whether they would make it over the line.

A formal deal was later announced that gives Telenor and Axiata each a 33.1 percent stake in the merged operator, with the remainder in the hands of investors. The structure of the deal will see Axiata receive newly issued shares in Digi representing a 33.1percent post-transaction shareholding and a cash equalisation amount of around 2 billion ringgit (around US$480 million), of which RM1.7 billion will come from Digi as new debt, and the remaining RM300 million from Telenor. Taking into account Axiata’s holding and those of Malaysian institutional investors, the merged Celcom Digi, as it will be known (unless the parents have since changed their minds), will be majority-owned by Malaysians and will continue to be listed on the Malaysian stock exchange.

At the time the firms said they expected to close the deal in the second quarter of 2022 – so within the next couple of days – but have since pushed back their deadline to the second half of this year.

They still have some work to do to get there; the deal requires the approval of the Securities Commission, Bursa Malaysia, and shareholders of both Axiata and Digi. But getting clearance from the MCMC is a huge step forward that will give the parties – and the wider industry – confidence that the merger will go ahead this time around.


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