Axiata Group Bhd, Telenor Asia Pte Ltd, and Digi.com Bhd announced the completion of a proposed merger between Celcom Axiata Bhd and Digi on July 1, 2021. The move creates a new leader in the Southeast Asia telecom market. The resulting entity, Celcom Digi Bhd, will hold a subscriber base of approximately 19 million.
Its “pre-synergic” equity value is nearly RM50bn (US$12.1bn). The companies intend to build a more sustainable and commercially stronger digital convergence service provider.
This new company is estimated to generate $3bn in annual revenues and $1.4bn in core profitability. Axiata and Telenor will each hold a 33.1% stake in the combined company, known as MergeCo, which will remain listed. Axiata entered an agreement to transfer 100% of Celcom’s Axiata shares to Digi for 17.76bn ringgits ($4.3bn).
Under the ownership agreement, Axiata will also receive approximately RM300,000 from Telenor, the largest shareholder of Digi. The merger involves Axiata obtaining newly issued Digi shares.
It also includes RM1.7bn in cash from Digi, which will be recorded as new debts for the combined company. Izzaddin Idris, chairman and CEO of Axiata Group, stated: “Assuming a smooth transition after the integration, we expect the combined company’s EBITDA and cash flow margins to improve, in line with our continued commitment to maximizing dividend payments for our shareholders.” The parties expect the merger to produce billions in free cash flow, after-tax profit, and pre-tax profit. Preliminary estimates suggest potential value accumulation through capital cost synergies and NPV-based costs of RM8bn.
Integration planning will involve more detailed work on business plans and synergies, ranging from future financial flexibility to cost savings. Maxis Bhd will be the main competitor for Celcom Digi.
The transaction comes as mobile network operators deal with declining profit margins in a challenging industrial environment. The combined company aims to accelerate the digitization of various industries. It will deploy digital technologies including cloud computing, artificial intelligence, and 5G Internet.
This capability is expected to create new opportunities for innovation and growth in the region. Izzaddin Idris said: “We have made significant progress in the continued merger with Telenor and Digi, and are in line with our intention to provide a strong value proposition that enables our customers to interact with confidence as the country transitions to a digital economy.” The merger is expected to be completed by June 2022, pending appropriate approvals.
Success depends on the ability of the parties to realize expected synergies and integrate operations.
