Indonesian telcos XL Axiata, Smartfren Telecom and its unit Smart Telcom (SmartTel) have agreed to merge to create an entity with an enterprise value of 104 trillion rupiah ($6.5 billion), the companies said on Wednesday.
Reuters first reported on the merger with financial details earlier on Wednesday.
Against the backdrop of wider consolidation in the sector, the merger will eventually lead to a three-player telco market in Indonesia, with Telkom as the largest followed by Indosat and the new entity.
The companies said in a joint statement it will be called XLSmart Telecom Sejahtera and “will have the scale, financial strength and expertise to drive investments in digital infrastructure, expand service coverage”, and other areas.
“This merger is an important step in laying the foundation for a robust digital economy,” said Vivek Sood, Group CEO of Axiata Group, parent of XL Axiata.
The deal is expected to be completed in the first half of 2025 subject to regulatory and shareholder approvals, the companies’ statement said.
XLSmart will have a combined mobile subscriber base of around 94.5 million and a market share of 27% in Indonesia, with pro-forma revenues of 45.4 trillion rupiah and earnings before interest, tax, depreciation and amortisation (EBITDA) of over 22.4 trillion rupiah, the statement said.
It will remain listed on Indonesia’s stock exchange, according to a stock exchange filing.
Other telecom players in Asia have consolidated to increase their scale and resources to invest and adapt to the rising demand for digitalisation and connectivity given the boom in 5G and artificial intelligence.
“We know that the telecommunications industry is increasingly saturated, the room for growth is also getting smaller, so I think the merger is inevitable,” Nezar Patria, deputy communication and digital minister, said on Wednesday, according to state news agency Antara.
The companies estimate the merger will result in pre-tax synergies of $300 million to $400 million annually through strategic network integration and resource optimisation.
Sood said the companies could decommission sites in the 20% to 30% of the network where their operations overlap, which would allow the combined group to refocus expansion on profitable targets.
No layoffs are expected in the short term following the merger, he said.
HEALTHIER SECTOR, ANALYSTS SAY
The merger will lead to a healthier telco industry as “all operators will focus on delivering profitability and return profile enhancements to the shareholders,” Mandiri Sekuritas analysts Henry Tedja and Danif Nouval Esfandiari wrote in a note.
Rivals Telkom and Indosat will benefit through sustainable mobile data pricing, rationalisation and profitability improvements, they added.
Malaysia-listed Axiata Group and Smartfren’s parent, Sinar Mas Group, will become joint controlling shareholders, each holding a 34.8% stake in XLSmart, with equal influence over its strategic direction and decisions, the companies said.
The shareholding equalisation will result in Axiata receiving up to $475 million cash in two payments with $400 million as the first, subject to certain conditions, the statement said.
The cash will come from Axiata selling 2.38 billion shares in the merged entity to Sinar Mas, according to the stock exchange filing. Axiata said in a separate statement it will use the funds mainly to reduce debt.
The merger entails the transfer of Smartfren and SmartTel to XL Axiata, where XL Axiata will issue 5.07 billion shares at 2,350 rupiah each to buy the companies for 11.92 trillion rupiah, the filing showed.
Shares of XL dropped 2.2% on Wednesday, but were up 12% year-to-date. SmartFren shares declined 7.4% and were down by almost 50% year-to-date, LSEG data showed.
Shares of Axiata in Malaysia were suspended Wednesday and will resume trading on Thursday. It has dropped 0.4% year-to-date.
CIMB and J.P. Morgan are financial advisers to Sinar Mas’ entities. Deutsche Bank and Maybank are financial advisers to Axiata. Citibank acts for XL Axiata, the statement said.
