EXCL-FREN – Creates USD6.5 bn merger value

EXCL-FREN – Creates USD6.5 bn merger value XL Axiata (EXCL), Smartfren Telecom (FREN) and Smart Telcom (ST) have reached an agreement to merge with a pre-synergy combined value of more than IDR104 tn or USD6.5 bn. If there are no obstacles, the effective date of the merger of the three companies are expected at April 15th, 2025. The merger will form a new entity named XLSmart Telecom Sejahtera (XLSmart). Axiata Group Berhad and Sinar Mas will be joint controlling shareholders, each holding a 34.8% stake in XLSmart with equal influence on the company's strategic direction and decisions. Upon completion of the transaction, the equalization of share ownership will result in Axiata receiving up to USD475 mn. After the transaction is closed, Axiata will receive USD400 mn, plus an additional USD75 mn at the end of the first year. With a combined total of 94.51 mn subscribers and a market share of 27%, XLSmart will generate proforma revenue of IDR45.4 tn and EBITDA of more than IDR22.4 tn. (Source : Kontan) Comment : The agreed-upon merger exchange-ratio is 1 FREN share for 0.011 EXCL shares, and 1 Smart Telecom share for 0.005 EXCL shares. This implies a valuation of IDR25.85 per FREN share, considering EXCL's merger share price of IDR2,350 per share. EXCL plans to repurchase 1.3bn shares (10% of its total O/S, which is 13,1bn shares) at IDR2,350 per share for dissenting shareholders. This means that the maximum total payment for the EXCL share repurchase is IDR3.1 tn. Additionally, FREN's dissenting shareholders can request a repurchase price of IDR25 per share. This price is based on the merger exchange ratio. Meanwhile, key-dates include an EGMS on March 21, 2025; a share repurchase period for dissenting shareholders in a merger from March 22 to April 10, 2025; and an IDX announcement on the first trading day of the merged company's shares on April 8, 2025. EXCL intends to distribute an annual dividend of USD70 million (approximately IDR1.1 tn) or IDR85 per share, translating to a dividend yield of 3.6% based on the merger share price. The dividend payment is scheduled for the first half of 2025, but it is not yet certain whether it will be made before or after the merger.