(June 21): After the first attempt to merge Celcom Axiata Berhad and Digi.Com Berhad – two of the largest mobile telecommunication companies in Malaysia – fell apart in 2019, Axiata, Telenor and Digi have finally signed the transaction agreement for the merger, today.
In a joint statement, the parties announced that they have concluded the due diligence, and the signing signifies a confirmation of the intent to establish a commercially stronger and more resilient digital converged service provider.
Axiata and Telenor will each hold equal stakes of 33.1% respectively in MergeCo, which will subsequently be renamed to Celcom Digi Berhad subject to MergeCo’s shareholders’ approval. Axiata and Telenor have also agreed to nominate Dato’ Izzaddin Idris as Chair, Jørgen C. Arentz Rostrup as Deputy Chair, Idham Nawawi as CEO and Albern Murty as deputy CEO of MergeCo.
Dato’ Izzaddin is currently Axiata’s President and Group CEO. Rostrup is Telenor’s executive vice president and head of Asia, Idham is CEO of Celcom while Murty is Digi’s CEO.
Malaysia’s largest telco deal
On a pro forma basis, MergeCo will serve an estimated 19 million customers with revenue of RM12.4 billion, EBITDA of RM5.7 billion, Profit After Taxation of RM1.9 billion and Free Cash Flow of RM4.0 billion. Targeted to be among the five largest companies listed on Bursa in terms of market capitalisation, MergeCo is valued at a combined pre-synergy equity value of close to RM50 billion.
The statement also said that the integration planning phase will include further detailed work on synergies and business plan of MergeCo, and initial estimates indicate potential value accretion through cost and capex synergies of around RM8 billion on a net present value basis.
“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,” Dato’ Izzaddin said.
“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. 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,” said Rostrup.
MergeCo’s world-class Innovation Center
In the same announcement, the parties also said that MergeCo will aim to make an investment of up to RM250 million over five years in building a world-class Innovation Center in Kuala Lumpur. The Innovation Center will conduct extensive research and development, develop 5G use cases, support local digital startups, and provide a platform to nurture the creation of a knowledge-based workforce to support government’s MyDIGITAL’s aspirations.
The proposed merger is expected to be completed by the second quarter of 2022. At completion, it will result in Axiata receiving newly issued ordinary shares in Digi, representing 33.1 percent of the enlarged issued share capital of Digi, cash consideration of RM2.0 billion of which approximately RM1.7 billion will come from Digi as debt in MergeCo and approximately RM300 million from Telenor as part of an ownership equalisation under the terms of the proposed merger.
Both Axiata and Telenor’s have also assured their employees that there will no forced layoffs as a result of the merger.
At market close today, Axiata shares fell 11 sen or 2.7% to RM3.98, giving a market capitalisation of RM36.5 billion while Digi shares rose 14 sen or 3.3% to close at RM4.32, translating to a market capitalisation of RM33.6 billion.
