Indonesian telcos conduct mega-merger talks

  • Axiata and Sinar Mas are reportedly in talks to combine their respective telecom operations in Indonesia 
  • A union of XL Axiata and Smartfren would be valued at $3.5bn and would create a stronger player in Indonesia’s competitive telecom market
  • A deal structure is being discussed, which could involve a blend of cash and stock

As the mobile and digital services market in Indonesia heats up, Malaysian conglomerate Axiata Group and Indonesian group PT Sinar Mas are looking to fortify their position in the sector with a plan to merge their respective telecom operations – XL Axiata and Smartfren – into a $3.5bn entity, according to a Bloomberg report that cited sources familiar with the discussions.

Under the proposed deal, XL Axiata and Smartfren, currently the third- and fourth-largest mobile operators in the country respectively, would be merged to better compete with state-backed Telkomsel and other rivals. Combined, the two operators would have about 94 million mobile customers (about 58 million from XL Axiata and 36 million from Smartfren), making it a stronger rival to the market leader Telkomsel (majority owned by Telkom Indonesia and partly owned by SingTel), which has just over 158 million mobile users based on September 2023 numbers, and the market’s second-largest player Indosat Ooredoo Hutchison, which has about 100 million mobile customers. 

The companies are currently discussing the structure of the merger, which could involve a mix of cash and shares, according to the report. While a non-binding agreement could be announced in the coming months, allowing the groups to proceed with negotiations and due diligence, the sources cautioned that a deal is not guaranteed. 

A representative from XL Axiata said consolidation would benefit the industry. He added that the company is open to exploring possibilities, but didn’t comment directly on a possible Smartfren merger, instead saying that such matters are a decision for shareholders, The Business Times reported. Smartfren’s president director and Sinar Mas representative, Merza Fachys, said he had no official information to share, according to the newspaper.

The resurrection of merger talks, initially reported by Bloomberg in September, comes in the wake of previous mobile sector consolidation in Indonesia. In a major shake-up of the market in 2022, CK Hutchison and Qatar’s Ooredoo merged their Indonesian telecom businesses in a $6bn transaction to form a stronger rival to Telkomsel and reduce the number of mobile operators from five to four in a country with a population of about 270 million. 

As Indonesia’s vibrant digital economy continues to expand, the XL Axiata-Smartfren combination would provide a much more formidable competitor to the country’s two market leaders, but there is still a long way to go in this process. Even if the two companies agree a non-binding deal, regulatory hurdles to reducing the sector from four main companies to just three would be very high, and if a deal were concluded, many integration challenges would lie ahead.  

- Joana Bagano, Contributing Editor, TelecomTV

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