[JAKARTA] Malaysia’s Axiata Group and Indonesia’s Sinar Mas Group announced a landmark US$6.5 billion merger of their Indonesian telecom units on Wednesday (Dec 11) to form XLSmart. The move underscores how companies are increasingly consolidating their businesses as they vie for market share in Indonesia’s fiercely competitive telecom sector.
The merger of Axiata’s XL Axiata and Sinar Mas’ Smartfren, pending regulatory and shareholder approvals and set to close in the first half of next year, is expected to deliver annual pre-tax savings of US$300 million to US$400 million through network integration and resource optimisation, according to a joint statement by both companies.
The merger hopes to drive 5G expansion, boost artificial intelligence and enhance network quality.
“XLSmart will have the scale, financial strength, and expertise to drive investments in digital infrastructure, expand service coverage, and foster innovation for customers, while contributing to a healthier and more competitive market,” said the statement.
Axiata Group and Sinar Mas will become joint controlling shareholders of the enlarged entity with each holding a 34.8 per cent stake, with equal influence over its strategic direction and decisions.
With a combined mobile subscriber base of approximately 94.5 million and a market share of 27 per cent, XLSmart is projected to generate pro forma revenues of 45.4 trillion rupiah (S$3.8 billion) and earnings before interest, taxes, depreciation, and amortisation (Ebitda) exceeding 22.4 trillion rupiah.
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Vivek Sood, group chief executive officer of Axiata Group, described the merger as a pivotal step towards building a strong foundation for a thriving digital economy in South-east Asia’s largest market.
“We firmly believe that industry consolidation paves the way for a more connected Indonesia and Asean, bridging the digital divide to foster a thriving and inclusive future where communities and businesses flourish,” he noted in a statement.
CIMB and JP Morgan are financial advisors to certain entities under Sinar Mas, while Deutsche Bank and Maybank are advising Axiata, and Citibank is acting as financial advisor to XL Axiata.
Nafan Aji Gusta, a market analyst at Mirae Asset Sekuritas, believes the merger between XL Axiata and Smartfren will elevate the competitiveness of Indonesia’s telecom sector by driving a more robust and consolidated market.
He envisions XLSmart tapping into a broad customer base, from individuals to businesses, thanks to both companies’ extensive presence in fixed broadband and fixed wireless access.
XL Axiata’s appeal lies in its strong following among younger consumers, particularly in the gaming community, while Smartfren has established itself as a preferred choice for business customers. “They each bring distinct and valuable customer segments to the table,” he noted.
Strengthening their position
In 2022, CK Hutchison Holdings and Qatar’s Ooredoo merged their local telecom businesses in a US$6 billion deal, aiming to strengthen their position in an increasingly competitive market.
With its projected customer base, XLSmart is set to become Indonesia’s third-largest telecom provider, trailing state-owned Telkomsel with 112 million subscribers and Indosat Ooredoo Hutchison with 98 million.
XL Axiata’s stock increased by 2.67 per cent, while Smartfren’s stock remained unchanged on the Indonesian stock exchange at around noon.
Trading in Axiata Group’s shares on Bursa Malaysia is suspended pending the announcement. The company’s shares last traded at RM2.37, and it has a market capitalisation of RM21.8 billion (S$6.6 billion).
