This article first appeared in The Edge Financial Daily on January 26, 2018 - February 1, 2018
KUALA LUMPUR: The chief executive officer (CEO) of Celcom Axiata Bhd Michael Kuehner’s remark has prompted the investing fraternity to speculate how the two would merge.
Kuehner has been quoted by Bernama as saying that it makes sense to merge Telekom Malaysia Bhd (TM) and Axiata Group Bhd, both of which are owned by Khazanah Nasional Bhd.
Yesterday, Bernama cited Kuehner as saying that merging TM and Celcom could result in “a lot of synergy” as both run big networks in the country, but it was still up to shareholders to make the final decision.
He told the media this after signing a memorandum of understanding with Malaysia Airlines Bhd, reported Bernama.
As the speculations turn rife, one possible way of merger could be Axiata injecting Celcom into TM through a share swap. TM will then be a vehicle that holds all domestic telecom operations, while Axiata will house the foreign operations. That way, Axiata could resume its previous role after a decade by focusing on regional businesses.
Instead of a cash acquisition, the share swap deal could mitigate implication of TM’s dividend payout ability, while maintaining Axiata’s earnings stream from Celcom through its shareholding in TM.
A second option could be that the two telco giants form a special purpose vehicle (SPV), which would acquire Celcom from Axiata and TM’s mobile service unit — Unifi Mobile, through issue of shares. And the SPV will be listed.
However, when contacted, JF Apex Securities Bhd research analyst Lee Cherng Wee told The Edge Financial Daily that it would be better for Celcom to remain in Axiata.
“Axiata is a regional player, I don’t see why it should exclude Malaysia market, and Celcom is their second-largest revenue contributor after Indonesia (PT XL Axiata Tbk). For the long run, it is better to merge, but it makes more sense to inject Unifi Mobile into Celcom,” he said.
“Unifi Mobile is still in its infancy, merging with Celcom could bring more value to it,” he added.
Hong Leong Investment Bank research analyst Tan J Young, on the other hand, said a merger between TM and Axiata could benefit Celcom as that would give it advantage in accessing TM’s fibre network.
“I agree with him (Kuehner) that it makes sense to merge. If you look at the global landscape, [the] telecom industry is consolidating, not only fixed line and wireless, there are also telcos and media [companies]. Because at the digital age, fibre network is very important, cellular players are going to need more capacity for higher data traffic moving forward,” he explained over the phone.
“Having said that, there are some concerns to be addressed before the merger [should there be one]. If the merger happens, Celcom will have access advantage to the fibre asset, thus this may raise anti-competition concerns,” he added.
An analyst with a local investment bank concurred that the merger could disrupt the industry in moving towards a level playing field, and opined that the potential merger does not make any business sense.
“The combination of Celcom and Unifi Mobile could mean a larger pool of subscribers, but the burden to maintain the spectrum infrastructure of two cellular companies will be big as well, I don’t think this synergy is justifiable for the merger, plus historically, GLCs (government-linked companies) are usually reluctant to downsize workforce, so I doubt that it would happen,” he said.
“TM also put in some effort to resuscitate Unifi Mobile, so if you think of it this way, TM shouldn’t buy it from Green Packet Bhd in the first place,” the analyst added.