XL Axiata and Smart Fren finally agree $6.5B merger

　　Indonesia's two smallest mobile operators, XL Axiata and Smart Fren, have finally agreed to combine their businesses.

　　The merged entity, with an enterprise value of 105 trillion Indonesia rupiah (US$6.5 billion), is the final step in market consolidation and seen as almost inevitable since Indosat and Ooredoo Hutchison formed IOH more than three years ago.

　　Axiata and Sinar Mas, a conglomerate with interests ranging from agriculture to coal, including controversial logging and palm oil businesses, have been "exploring options" since October 2021.

　　Announcing the deal in a stock exchange filing Wednesday, Axiata Group said the merged entity, to be named XLSmart Telecom, will have a combined subscriber base of 94.5 million, or around 27% of the market, and pro forma revenues of IDR45.41 trillion ($2.8 billion).

　　Under the merger agreement, Axiata and Sinar Mas will each hold 34.8% in XLSmart, with Sinar Mas agreeing to pay up to $475 million to equalize its shareholding.

　　The merger would bring $300-$400 million in annual "synergies," Axiata said.

　　Series of mergers

　　"With an expanded customer base, higher spectrum basket, broader service offerings, and enhanced financial stability, XLSmart is better positioned to compete with larger players in the market to capture market share, improve revenue streams and drive shareholder value," it said.

　　The consolidation would "foster a healthier competitive environment and advance the nation’s digital transformation agenda," Axiata said.

　　Indonesia's mobile market is led by Telkomsel, 30% owned by Singtel, with 158 million customers, a share of around 45%, while IOH, 65% owned by an Ooredoo-Hutchison JV, has approximately 101 million subs.

　　Axiata CEO Vivek Sood said the deal followed a series of mergers successfully concluded in Bangladesh, Malaysia and Sri Lanka. "Axiata has demonstrated significant expertise in executing successful mergers and unlocking value for shareholders," he said.

　　Pending approvals, the transaction should be completed in the first half of 2025.

　　Axiata's Kuala Lumpur stock suspended trading this morning. It is up 4.4% in the past month.

　　In the other ongoing Asian telco M&A, private equity firm I Squared has reportedly begun its due diligence on Hong Kong's HKBN.

　　I Squared, the 100% owner of another small Hong Kong operator, HGC, is yet to file a formal bid for HKBN. State-owned giant China Mobile has offered HK$5.23 a share for the company, valuing it at approximately $882 billion.