Telenor and Axiata To Form Pan Asian Telecom Giant

Telenor and Axiata To Form Pan Asian Telecom Giant
May 8, 2019

 

Norway’s Telenor ASA (OTC: TELNY) and Malaysia’s Axiata Group are in discussion for a possible merger that may result in the formation of a telecom behemoth in South and Southeast Asia with about 300 million clients, as both parties draw plans to boost growth in an extremely tough market. The merged entity would be valued at $40 billion, including debt, making it one of the biggest cross-border unions in Asia, barring Japan and China. Telenor ended yesterday’s trading at $20.46, up 0.36% from the prior close.

The suggested no-cash merger deal would result in unified operations in South Asia and Southeast Asia, with the Norwegian telecom firm controlling 56.5% and Axiata holding 43.5%, the firms said. The combined company will operate in nine nations having a total population of approximately 1 billion, including Thailand, Malaysia, Bangladesh, Pakistan, and Indonesia, and will compete with companies like Singapore Telecommunications Ltd.

Commenting on the probable merger, Jamaludin Ibrahim, Axiata group CEO said: “The bottom line is we need the scale, we need the synergy, we need the balance sheet, we need the strong capabilities of both companies. If we can combine that it will be powerful.”

Axiata further stated, “With its unique portfolio, the MergedCo will be one of the largest telecommunications groups in the region in terms of value, revenue, and profit.”

The combined entity will become one of the top three carriers in nine markets. Such a scenario would enable the merged firm to finance itself more effectively in a sector where telecom firms face margin stress as customers opt for free voice facilities. Last year, Telenor divested its primary European division to strengthen its activities around a Nordic and Asian division. It purchased a $1.7 billion majority interest in Finland’s DNA in April. The merged organization will have enough financial strength to invest in economies such as Indonesia, resulting in more regional strengthening. It will manage roughly 60,000 cellphone towers throughout Asia, turning it one of the region’s biggest cellular infrastructure companies.

Telenor opined that it is feasible to list the tower operations separately in the equity market. The combined company’s annual Pro-forma revenues are projected to be $13 billion, with EBITDA (earnings before interest, tax, depreciation, and amortization) income of $5.5 billion. Companies predict the merged group to deliver profits of around $5 billion but did not provide any profit break down. The two-lap over in Malaysia, where they will combine their corresponding divisions, Celcom and Digi, underneath the final holding company. Axiata’s stocks were temporarily suspended from trading, ahead of the release, while Telenor’s shares grew 4.9% after the merger news. Analysts were hopeful about the proposed merger but warned about legislative obstacles.

On the proposed merger, Alex Goh, an analyst at AmInvestment Bank in Kuala Lumpur, said: “Overall, we would be positive if this deal materializes as this could reduce the number of competitors, effectively enabling the merged entity to leapfrog to top positions in terms of market share in countries which are involved in the merger.”

In the coming years, the combined entity will be listed on a global stock exchange as well as in Malaysia. The merger discussions have begun months after Axiata’s 37% stakeholder, Khazanah Nasional Bhd, announced a new investment plan that involves reshuffling its $33 billion portfolio into business and strategic assets. The companies are striving to conclude the deal in the third quarter.

CIMB Research expects the merged entity to realize cost savings of between RM15 billion and RM20 billion for Axiata and Telenor. Furthermore, roughly RM7 billion to RM9 billion in savings would be realized from the merger between Telenor’s 49%-owned Digi and Axiata’s wholly-owned Celcom Axiata Bhd.

In a note to clients, CIMB Research said: “This will mainly be derived from opex (operational expenditure) savings from the removal of duplicate network sites, sharing of IT system platforms and rationalization of sales and marketing expenses. Combining spectrum holdings will also lead to more efficient usage and greater capacity, resulting in CapEx (capital expenditure) avoidance.”

Citigroup is acting as an advisor to Telenor, while Morgan Stanley is providing consultation to Axiata.

The merger news is expected to keep the stock bullish in the short-term.

The historical price chart indicates that the stock is trading above its 50-day moving average. Additionally, the MACD indicator is also rising in the positive zone. As a result, we can expect the stock to remain bullish in the days to come.

tel - technical analysis - 8th May 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

 

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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