(Bloomberg) -- Malaysian wireless carrier Axiata Group Bhd. and Indonesian conglomerate PT Sinar Mas Group agreed to merge their telecommunications operations in Indonesia in a deal that values the business at $6.5 billion.
The owners of PT XL Axiata and PT Smartfren Telecom said the transaction would take effect on April 15, with the former being the surviving entity and changing its name to XLSmart Telecom Sejahtera, according to disclosures Wednesday.
The disclosures confirmed a Bloomberg News report Monday that the companies were nearing an agreement and could announce a deal this week.
The agreed merger price for XL is 2,350 rupiah per share. Smartfren investors will be eligible for 0.011 XL share for every Smartfren share they own.
XL’s shares closed 2.2% lower on Wednesday in Jakarta — the steepest drop in a month — to 2,240 rupiah. Trading of parent Axiata’s shares in Malaysia was suspended and will resume Thursday.
As part of the merger, Sinar Mas will acquire an additional 13.1% stake in XLSmart from Axiata at a cash consideration of up to $475 million, with $400 million to be paid at the completion of the merger and the remainder at the end of the first year, subject to certain conditions. Both companies will eventually become joint controlling shareholders with a 34.8% stake each, giving them equal say in XLSmart’s strategy, according to the statements.
XL employees have demanded transparency about the merger and assurances of job security, local media reported.
The deal caps more than three years of talks. Bloomberg reported in April that Axiata and Sinar Mas were making progress on a transaction, and the companies announced in May the signing of a non-binding memorandum of understanding.
“The surviving entity should be able to generate higher profitability due to its higher economics of scale and more efficient operations,” said Paulus Jimmy, deputy head of research at PT Sucor Sekuritas in Jakarta. “This situation is similar with that of PT Indosat Tbk merger a few years back.”
CK Hutchison Holdings Ltd. and Qatar’s Ooredoo QPSC merged their local businesses in 2022 in a $6 billion transaction to create PT Indosat.
XL and Smartfren’s merger would effectively make the Indonesian telecom sector a three-player market. PT Telkom Indonesia is the largest operator with over 158 million mobile subscribers and about 169 million subscribers in total. XLSmart would have about 95 million mobile subscribers and revenue of 45.4 trillion rupiah ($2.9 billion), according to company estimates.
“The merger is structured to deliver organic shareholder value through synergy realization rather than immediate valuation uplifts from the deal itself,” Niko Margaronis and Kafi Ananta Azhari, analysts at PT BRI Danareksa Sekuritas, wrote in a note.
XL may need to prepare 3 trillion rupiah for the possibility of a buyback if there are shareholders who disagree with the merger, they said.
--With assistance from Elffie Chew, Manuel Baigorri, Anisah Shukry and Ram Anand.
(Updates with XL Axiata share moves in fifth paragraph, additional information on the cash consideration in sixth paragraph)
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