Axiata and Sinar Mas step closer to $3.5B merger in Indonesia – reports

Malaysia's Axiata Group and Indonesian conglomerate PT Sinar Mas Group have reportedly set the wheels in motion on their plan to merge their telecommunications operations in Indonesia, which would create an entity valued at $3.5 billion.

Citing unnamed sources familiar with the matter, Bloomberg (paywall applies) said the Indonesian units of both companies – XL Axiata and Smartfren Telecom – are discussing the structure of a potential deal, which could involve a mix of cash and shares.

A non-binding agreement may be reached in the coming months, allowing the companies to continue negotiations and conduct due diligence, the report said. It added, however, that there is no guarantee that the merger will push through.

The news comes seven months after rumors emerged that the Kuala Lumpur-based Axiata and its Jakarta-based counterpart reportedly revived talks about a potential tie-up. Besides a merger, other options under consideration included network-sharing agreements and partnerships.

XL Axiata and Smartfren Telecom have been exploring ways to work together since 2021 – at a time cellular operators in Indonesia were joining forces to consolidate resources in a crowded market.

Putting its house in order

In recent months, Axiata Group has been putting its house in order as it realigns its international business – exiting markets to cut down losses and entering mergers to strengthen its operations in markets overseas.

Related:Axiata to exit struggling Nepal business

Just last week, its Sri Lanka unit Dialog Axiata signed a definitive agreement to buy Bharti Airtel's operations in the island nation, acquiring a 100% stake in Airtel Lanka by issuing its Indian counterpart a 10.4% stake in Dialog Axiata.

Axiata said the Telecommunications Regulatory Commission of Sri Lanka has granted its approval for the proposed merger.

"This consolidation will enable the merged entity to garner economies of scale and reduce duplication of infrastructure, achieve synergies in technology and capital expenditure leading to enhanced high speed broadband connectivity, voice and value-added services, cost savings and operational efficiencies," the Malaysian telco said in a news release.

In November, Axiata exited Nepal by selling its struggling Ncell business to Spectrlite UK for a fixed consideration of $50 million.

Explaining the move, Axiata CEO Vivek Sood said the outlook was "increasingly challenging" in the Himalayan country, which is suffering from high inflation, low growth and a series of corruption scandals.

Axiata wrote down 1.2 billion Malaysian ringgit (US$258 million) in an Ncell asset impairment and wrote off another MYR317 million ($68 million) in receivables it said in its Q3 2023 filing.

Related:XL Axiata, Smartfren in talks as Indonesia consolidates