Axiata, Sinar Mas sign MoU to explore XL Axiata-Smartfren merger

Axiata, Sinar Mas sign MoU to explore XL Axiata-Smartfren merger

The long-rumoured merger of Indonesian telcos XL Axiata and Smartfren moved another step closer to reality on Wednesday as parent companies Axiata Group and Sinar Mas announced they have officially signed an MoU to explore the proposed merger.

The non-binding Memorandum of Understanding – signed by Axiata and Sinar Mas companies Global Nusa Data and Bali Media Telekomunikasi – is cautiously worded, stressing that the merger “is at an early stage of evaluation”, and that there is “no certainty” that a final agreement will even be reached.

Axiata and Sinar Mas did say, however, that if the merger goes ahead, both will remain as joint controlling shareholders of the resulting entity, referred to in the MoU as “MergeCo”.

Axiata also highlighted the advantages that it believes a XL-Smartfren merger would gain by combining Axiata’s scale, competencies, finances and telecoms expertise with Sinar Mas’ local scale and market knowledge.

“Axiata believes that MergeCo will have the strategic agility, competence and scale to meet increasing expectations and demand from consumers, businesses and the Indonesian public sector,” the company said in a statement. “MergeCo is expected to deliver superior customer experience in the telecommunications sector and create additional shareholder value including through synergies from the combined operations of XL Axiata and Smartfren.”

XL Axiata and Smartfren are currently the two smallest operators in Indonesia. Third-ranked XL Axiata has 58 million customers, while fourth-ranked Smartfren has 32 million. The combined company would be a stronger competitor against the country’s other two major operators: Telkom Indonesia's Telkomsel and Indosat Ooredoo Hutchison.

Axiata said the exploratory phase will include due diligence, preparation of a joint business plan and agreement on key terms, as well as validating the rationale for the merger and its value creation to shareholders.

Rumours of a potential merger between XL Axiata and Smartfren have been circulating for almost three years.

Last week, Indonesia’s Minister of Communication and Informatics Budi Arie Setiadi told Reuters that Axiata and Sinar Mas have sought approval from telecoms regulator KemKominfo to proceed with a merger plan.

Budi said he supports the merger because it would be “more manageable” to have just three telcos in Indonesia.

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