Telenor and Axiata have another bash at a Malaysia merger

Telenor and Axiata have shared in-depth details of a plan to merge their Malaysian mobile operations, but it’s important to note that we have been here before.

Following speculation on the matter, the operator groups on Thursday announced that they are “in advanced discussions” regarding the potential merger. They aim to bring together Telenor’s Digi business and Axiata’s Celcom into an entity in which they would each hold a 33.1% stake with the remainder in the hands of investors. Axiata was keen to point out that its stake combined with the shares held by Malaysian institutional investors would equate to more than 51% of the new company – majority ownership will be in Malaysian hands, essentially.

Under the terms of the proposed deal, Axiata will receive newly issued shares in Digi representing a 33.1% post-transaction shareholding and a cash equalisation amount of around RM2 billion (around US$480 million), of which RM1.7 billion will come from Digi as new debt, and the remaining RM300 million from Telenor.

The new company will be named Celcom Digi and will continue to be listed on the Malaysian stock exchange.

Axiata said it has the right to nominate the first chairman and CEO of Celcom Digi and, following discussion with Telenor, has named Celcom’s existing chairman and chief executive, Dato’ Izzaddin Idris and Idham Nawawi respectively, as holders of the same positions in the new company.

Telenor’s recently-appointed Head of Asia Jørgen C. Arentz Rostrup will serve as vice chairman, while Albern Murty, Digi CEO, will take on the role of deputy chief executive.

Telenor brought together its Asian businesses under Rostrup’s leadership in May last year in a move designed to help it, in its own words, “seize opportunities for growth” within the region. We took that to mean that M&A would likely be on the cards and less than a year later, here we are.

“The proposed merger represents an important milestone in Telenor Group’s strategy to strengthen its Asian presence and create value in the region. The new entity will have size and financial capabilities to support Malaysia’s digital aspirations and lead industry development in a connected society. We look forward to partner with Axiata to realize the potential of the new company,” Rostrup said on Thursday.

“We are exceedingly pleased to have come this far in discussing the potential merger of our Malaysian operations,” added Tan Sri Ghazzali Sheikh Abdul Khalid, chairman of the Axiata Group’s board.

Indeed, with the level of detail the companies have provided regarding the proposed merger means it is tempting to assume that the negotiations are all but complete and it is now just a matter of a rubber stamp. But history advises caution.

Telenor and Axiata agreed to join their Malaysian businesses almost two years ago, in May 2019, talking up a “proposed mega merger of equals.” But it was not to be. The deal was called off four months later, the companies vaguely citing “some complexities” in the proposed transaction.

The tone of Thursday’s announcement suggests that this second attempt at a deal is further down the line, but – and it’s a pretty big ‘but’ – the companies have yet to complete due diligence and are working towards hammering out a final merger agreement this quarter.

Even assuming the talks are more fruitful this time around, the deal will still require various approvals, including the go-ahead from DiGi’s board and Celcom’s shareholders, and the all-important regulatory green light.

“The parties acknowledge that there is no certainty that these discussions will result in any agreement,” the companies said.

We’re fully aware of that, more so with this deal than any other.

Image credit (cropped)