Axiata and Telenor have signed an agreement regarding the previously announced merger of their Malaysian operations, the two companies have announced.

It was revealed in April that the two groups were in "advanced discussions" over the merger of Axiata subsidiary Celcom and Telenor's Digi.

Axiata, Digi and Telenor today confirmed that they have signed a "transaction agreement" for the proposed merger, creating an initial MergeCo in which Axiata and Telenor will each own a 33.1% stake. The combined entity will ultimately be named Celcom Digi Berhad.

Figure 1: Wave it through: Axiata's Celcom and Telenor's Digi have signed off on the merger of the two Malaysian telcos.
(Source: mkjr_ on Unsplash)

Reuters reported that the deal is worth $15 billion, which trumps the attempted $13 billion merger between Axiata and Telenor's Asian operations in 2019, abandoned because of Indonesian opposition and Malaysian sensitivities over ceding control to the Norwegian firm.

MergeCo will continue to be listed on the local exchange and is valued at a "combined pre-synergy equity value" of close to RM50 billion (US$12 billion). Once completed, the merger will create Malaysia's largest mobile operator, with pro forma revenue of about RM12.4 billion ($3 billion), EBITDA of RM5.7 billion ($1.37 billion) and an estimated 19 million customers.

The new entity is structured to grant more than 51% ownership to Axiata and its Malaysian institutional shareholders, as well as the right to nominate the initial chairman and CEO.

Axiata and Telenor said they have agreed to nominate Dato' Izzaddin Idris, the president and Group CEO of Axiata, as chair; and Jørgen Arentz Rostrup, executive vice president and head of Asia at Telenor Group, as deputy chair. In addition, Celcom's current CEO Idham Nawawi has been nominated as CEO of the new entity; and Albern Murty, Digi's CEO, is to become deputy CEO.

The transaction, which is subject to regulatory and other approvals, is expected to be completed by the second quarter of 2022.

Driving toward 5G

Axiata and Telenor are clearly intending to make a big play for future 5G customers amid rising take up of digital services.

Indeed, Malaysia is moving ahead with its ambitious plan to build a single national 5G network, although details such as how it will be funded have yet to be clarified.

As things stand, Digital Nasional Bhd (DNB), a special purpose vehicle created by the Finance Ministry to drive the process, has called for bids from eight vendors: Ericsson, Nokia, Huawei, ZTE, Samsung, NEC, Cisco and Fiberhome.

Meanwhile, the fortunes of the two merging operators have remained mixed in 2021 following the coronavirus-blighted year of 2020.

Interested in Asia? Check out our dedicated content channel here on Light Reading.

Axiata said in May that Celcom's performance in the first quarter had "continued to demonstrate improvements in subscriber, revenue and operational profitability measures, despite challenges in a highly competitive market."

It said EBITDA improved 27.6% year on year, mainly due to the absence of one-off items incurred in Q1 2020. Adjusting for performance comparison, EBITDA grew by 6.6%.

Digi reported a 3.6% decline in service revenue year on year, although service revenue fell by a lower rate of 1% on a quarterly basis. EBITDA dropped by 2.5% year on year and 3.8% compared to the prior quarter, which the operator attributed to a focus on operational efficiency.

Related posts:

— Anne Morris, contributing editor, special to Light Reading