Axiata Group Bhd. and Norway’s Telenor
ASA signed a definitive agreement to combine their Malaysian mobile operations
in what is the biggest telecom transaction in the country.
Axiata will transfer its stake in Celcom
Axiata Bhd. to Digi.com Bhd. for RM17.8 billion, according to a filing today.
In return, it will get new shares and RM1.7 billion in cash from Digi, and
close to RM300 million from Telenor. The merged entity will have a “pre-synergy
equity value” of close to RM 50 billion (Bloomberg, June 21).
The proposed merger of Celcom Axiata Bhd
and DiGi.Com Bhd is driven by demand for network capacity and benefits to be
gained from the enlarged scale. Increasing demand for network coverage with the
highest speed and the competition among service providers have pushed down the
prices for the services. Axiata and Telenor will have an equal ownership of
33.1% each in the merged entity, Celcom Digi Bhd.
Source: The Star & KLIA2
Celcom Digi Bhd will have a proforma
revenue of RM12.4 billion in financial year 2020, ushing its position to the
top of the list compared to other telecommunications companies. Would the merger
lead to a monopoly? A source close to Celcom told The Malaysian Reserve (April
14) that he does not think so. The difference in revenue between Celcom Digi
and Telekom Malaysia Bhd (TM), which came in second, is only around RM2
billion. And there are at least five other strong players in the industry to
ensure healthy competition.
M Shanmugam in his article Alternative
Views: Celcom-Digi merger: A test of cultures stated that takeovers of
companies usually produce better results than mergers. In takeovers, there is a
clear leader who sets the pace of the merger between the acquirer and the
target company, drives the operations of the merged entity, and shapes a single
culture. Mergers of equals, especially between two strong companies, do not
necessarily produce the desired results.
Both Celcom and Digi have their strengths
and weakness. The ideal merger would be to take advantage of the strengths of
both and minimise the weaknesses.
Digi, due to the technical and marketing
strength of its major shareholder Telenor, is known for its innovation in
marketing its products. Its marketing strength and product pricing have
positioned it as a leader to serve the lower-income users. Digi has positioned
itself well among college students and migrant workers, who are mainly prepaid
customers.
As for Celcom, it has a steady pool of
customers because of the strength of its network and reach. Compared to the
other mobile operators, Celcom’s mobile network is more extensive and robust,
and its consumers generally encounter fewer problems. Celcom’s network strength
is also a reason why it is favoured by mobile virtual network operators
(MVNOs).
In relation to an integration of the two
mobile telco providers, there is an abundance of consultants who can facilitate
the merger. But the actual integration to make this merger work needs to be
executed by employees of both companies. Normally, this is the period when the
work cultures of Celcom Axiata and Digi would be put to the test. An advantage
is that both entities already share infrastructure.
And the gap in the culture of both
companies is not that big, unlike in the case of Malaysia Airlines and AirAsia,
M Shanmugam believes. The Malaysia Airlines-AirAsia proposed merger was doomed
to fail right from the start because, apart from culture differences, both
companies have been competing aggressively for market share in the domestic
aviation sector. The years of competition have created an enormous amount of
distrust between them.
In the case of Celcom-Digi, the distrust
is less. Both companies compete in an environment that is dominated by the
likes of Maxis in the area of mobile services, and Telekom Malaysia Bhd is in
the broadband segment.
The experts are banking on the merged
entity to be able to come up with products and services at competitive prices.
For this to be achieved, the cultures of Celcom and Digi need to melt into one
big pot. If, the process becomes too hot to handle, the merger will fail
dismally. But usually one party is dominant even though it is a so-called
merger of equals. Then that culture will become the new culture of the merged
entity. Anything otherwise is wishful thinking!
Reference:
1.
Ahmad
Naqib Idris, Axiata: Due diligence for Celcom-Digi merger completed, to sign
definitive agreements ‘soon’, 15 June 2021, The Edge
2.
Aila
Jalil, Celcom, Digi merge to gain financial power, 14 April 2021, The Malaysian
Reserve
3.
M
Shanmugam, Alternative Views: Celcom-Digi merger: A test of cultures, 19 April
2021, The Edge
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