This article first appeared in The Edge Malaysia Weekly on December 26, 2022 - January 1, 2023
THE momentous merger between two telecommunications companies that was long in the making was finally completed on Nov 30 this year, bringing forth the country’s largest converged telecommunications operator — Celcom Digi — with a market capitalisation of about US$10 billion (RM44.2 billion).
For its sheer size alone, the merger, first announced in April 2021 (when it was in advanced discussion) and inked in June 2021, deserves special mention under Best M&A in The Edge’s list of Best Deals of 2022, which considers deals completed by Nov 30.
The deal essentially sees enough of Axiata Group Bhd’s wholly-owned Celcom injected into Norwegian Telenor ASA’s 49%-owned Digi.Com Bhd, with an “equalising” cash sum paid to Axiata by Digi as well as Telenor to result in both Axiata and Telenor holding an equal 33.1% stake in the enlarged listed Digi.Com Bhd, to be renamed Celcom Digi within three months.
With Celcom injected into Digi, the latter’s enlarged market capitalisation instantly soared to more than RM40 billion — well ahead of those of both Axiata and Maxis Bhd — to join the ranks of the top 10 largest listed stocks on Bursa Malaysia. Digi was the eighth-largest stock on Bursa Malaysia as at Nov 16 this year, soaring from 17th place on April 8, 2021, when advanced talks for the merger was first announced. Meanwhile, Axiata was at 15th place, compared with 11th place prior to the merger announcement.
At the time of writing, the enlarged Digi was valued above RM43 billion — more than RM10 billion higher than Maxis and the Axiata that no longer houses 100% of Celcom. Both Maxis and Axiata were hovering around RM30 billion post-exercise. Some value has been unlocked, going by how the combined post-merger market cap of Axiata and Digi of RM71.03 billion (Axiata’s RM27.62 billion + Digi’s RM43.41 billion) is some RM10 billion larger than the RM60.93 billion just ahead of completion of the merger (Axiata’s RM29.83 billion + Digi’s RM31.1 billion) on Nov 30, 2022, and RM64.02 billion (Axiata’s RM34.86 billion + Digi’s RM29.16 billion) when advanced talks were first announced about 20 months ago.
For holding a smaller 33.1% stake in the enlarged Celcom Digi, Axiata receives RM2.5 billion from Digi and RM300 million from Telenor — collectively RM2.8 billion, or about 27.7 sen per share, in “equalising sum” — most of which will go towards “strengthening [Axiata’s] balance sheet by paring down debt”.
Axiata announced a special dividend of four sen per share on Dec 6 from the “remaining cash” — which, together with the dividend of five sen per share announced with its third quarter results released on Nov 25, works out to nine sen per share, or about RM909 million, to be paid on Jan 20, 2023. Axiata shares will trade ex-dividend for the entire nine sen on Dec 29, according to a filing dated Dec 14. As Axiata usually announces a final dividend with its fourth-quarter results, there is a good chance that it will beat the 9.5 sen paid in FY2021 and seven sen paid in FY2020.
Used to receiving close to all of its profits in quarterly dividends, Digi minority shareholders will be looking out for affirmation from the merged entity’s board about whether the existing dividend policy of distributing at least 80% of profits and payment frequency will continue. There is no certainty that the merged Celcom Digi will adopt Digi’s dividend policy, “as such policy will be determined and approved by the board of the MergeCo, which will only be formally constituted after the completion of the merger”, according to Appendix V (section 2.2) of Digi’s 670-page circular to shareholders. In its statement to mark the completion of the merger on Nov 30, Axiata says the company “remains committed to the previous announced synergy target of RM8 billion”.
Axiata chairman Tan Sri Shahril Ridza Ridzuan says Celcom Digi “is strategically poised to invest in network expansion and support the growth of Malaysia’s digital ecosystem”. He adds that Celcom Digi is also “well placed to serve Malaysian consumers and enterprises seeking to step up on digital competitiveness in the current era, [given that it is] backed by the global experience, excellent governance standards and financial strength of Axiata and Telenor as shareholders”.
As with any merger, there is much hard work to be done to streamline operations to derive the intended synergies.
To borrow the words of Telenor Group president and CEO Sigve Brekke in a statement dated Nov 30 marking the completion of the deal: “Then, in truth, the real work starts now, and I am confident that we will see Celcom Digi spearhead Malaysia’s digitisation push going forward.”
Jørgen C Arentz Rostrup, who oversees Telenor Asia’s operations in Bangladesh, Malaysia, Pakistan and Thailand from Singapore, says in the statement: “This new entity is taking the best from both companies. It is well positioned to drive innovation and high-skilled employment, increase consumer choice for digital needs, and explore opportunities within 5G services, [artificial intelligence] and [Internet of Things].
“With Celcom Digi, we can stay competitive, drive growth, build scale and enhance execution capabilities and innovation momentum.”
Maybank Investment Bank Bhd is Axiata’s principal adviser for the Celcom Digi merger; and CIMB Investment Bank Bhd is Digi’s principal adviser. AmInvestment Bank Bhd is the independent adviser for Digi shareholders in relation to the proposal.
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