Axiata to End Talks to Merge Asian Business With Telenor

(Bloomberg) -- Axiata Group Bhd. and Telenor ASA ended talks on merging their Asian telecommunication operations, scrapping an effort to create a company with 300 million customers across nine countries.

The decision was mutual, Oslo-based Telenor said in a statement Friday, confirming an earlier Bloomberg News report. Telenor cited “complexities” as the reason for the halt, without elaborating. Telenor shares slid 4.8% as of 10:22 a.m. in Oslo, while Axiata trading was suspended.

Axiata said it would explore opportunities to consolidate and optimize its business. Hanne Knudsen, Telenor’s spokeswoman, said by phone that it would now be “business as usual” for the company in Asia, focusing on “growth and efficiency,” while not ruling out that talks could be picked up again later.

The decision to quash the deal comes months after Malaysian Prime Minister Mahathir Mohamad questioned how combining the companies would affect employment. Telenor had cited about $5 billion in synergies from the combination, which would have created a company with $13 billion of sales. The Norwegian telecom company was to have owned 56.5% of the merged entity under the plan.

Axiata’s board met Friday to discuss the planned merger and decided to cancel the deal, said a person familiar with the talks, who asked not to be identified as the matter is private.

The companies had planned to have a final agreement on the deal by the third quarter, with Axiata Chief Executive Officer Jamaludin Ibrahim saying last month that the company was still sticking to its timeline for signing the agreement. He cautioned that while most mergers center on commercial interests, this one involves national interest and staff issues as well.

A combination would have provided a stronger foothold for both companies, which have recently seen their ambitions checked in Asia. It would have been the largest mobile operator in Malaysia, combining Celcom Axiata and Telenor’s Digi.Com, and created a global top five mobile infrastructure company.

Telenor first entered Asia more than two decades ago and derives more than half of its revenue from the region. It also operates in Thailand, Bangladesh, Pakistan and Myanmar. Axiata has business in Cambodia, Nepal, Sri Lanka and Indonesia.

The end of the talks adds to pressure on Telenor, which has struggled in key markets in Asia. Citing tough competition in Malaysia, the company in July cut its outlook for this year, warning that revenue from phone customers and data would likely be little changed this year, after earlier anticipating a 2% gain.

Telenor is also weighed down by slow growth in its more mature markets in the Nordic region, where it’s seeking to compete harder with Telia Co AB after selling its Eastern European business last year. It earlier this year also became the target of an activist investor, who urged the company to spin off its mobile masts and increase its debt.

What Bloomberg Intelligence Says:

Telenor will need to redouble efforts to cut costs and revive growth across its Asian units, in our view, after abandoning plans for a regional merger with Axiata. The deal would have added about 40% to Telenor’s sales and Ebitda and 30% to free cash flow.
Matthew Bloxham, BI telecoms analyst, to read research, click here

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