Telenor and Axiata finally ink Malaysia merger

After months of negotiations, Telenor and Axiata have put pen to paper on their plan to merge their respective Malaysian operations Digi and Celcom.

The combined company – called MergeCo – will go to market with the Celcom Digi brand, and will serve 19 million customers. According to recent figures from Malaysia’s telco regulator, the Malaysian Communications and Multimedia Commission (MCMC), the country had 43.7 million mobile subscribers at the end of Q1 2020, which means the merged company will account for a sizeable chunk of the market.

To help strengthen its position, MergeCo has committed to ploughing RM250 million over the next five years into an innovation centre in Kuala Lumpur, tasked with researching 5G use cases and supporting digital start-ups.

Looking at the financial side, MergeCo will generate pro forma EBITDA of RM5.7 billion ($1.4 billion) per year, on revenue of RM12.4 billion. The deal is expected to generate cost and capex synergies of around RM8 billion.

Telenor and Axiata will each own 33.1 percent of MergeCo. Under the deal, Axiata will get newly issued ordinary shares in Digi, bringing its stake up to the 33.1 percent mark. It will also receive RM2 billion, RM1.7 billion of which will come from Digi as debt in MergeCo, and RM300 million from Telenor.

Axiata highlighted that its shareholding, combined with that of Malaysian institutional investors, equates to more than 51 percent of the company, meaning MergeCo will be a Malaysian-owned operation.

In terms of personnel, Celcom CEO Idham Nawawi has been chosen to lead the new company, with Digi CEO Albern Murty serving as his deputy. Dato’ Izzaddin Idris, who is president and CEO of Celcom parent Axiata, has been nominated as MergeCo’s chairman. Jørgen Arentz Rostrup, the head of Telenor’s Asia footprint, will serve as deputy chairman.

“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 Rostrup, in a statement. “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.”

Telenor and Axiata confirmed in April they were in advanced discussions regarding the merger, but said they had yet to complete their due diligence.

It is the second time the companies have tried to merge their Malaysian mobile businesses. Their first attempt, in May 2019, ended unsuccessfully four months later, with both sides claiming unspecified complexities in the transaction.

Both sides will be hoping to avoid a repeat of last time.

“We are charting good progress in the ongoing merger exercise with Telenor and Digi and remain aligned in our intentions to deliver a strong value proposition that will enable our customers to participate more confidently as the nation transitions towards a digital economy,” declared Axiata’s Idris.

Provided all goes smoothly this time round, the deal is expected to close in the second quarter of 2022.