Indosat and Tri Official Merger with Transaction Value of 85,6 Trillion Rupiah

PT Indosat Ooredoo Tbk (IDX:ISAT) officially announced a merger with PT Hutchison 3 Indonesia (H3I) with an agreed value of $6 billion or 85,6 trillion Rupiah. Through its parent company Ooredoo Group and CK Hutchison, the two companies will merge their businesses into "Indosat Ooredoo Hutchison".

Currently, Ooredoo Group owns 65% of Indosat Ooredoo through Ooredoo Asia. Through this merger, CK Hutchison will acquire a new 21,8% stake in Indosat Ooredoo Hutchison. CK Hutchison will also acquire a 50% stake in Ooredoo Asia by exchanging its 21,8% stake in Indosat Ooredoo Hutchison for a 33% stake in Ooredoo Asia.

The Hong Kong-based telecommunications conglomerate will also acquire an additional 16,7% stake in the Ooredoo Group for $387 million or IDR 5,5 trillion. Both parties will have a 50% ownership interest in Ooredoo Asia, which will be named Ooredoo Hutchison Asia, and own 65,6% shares and control over Indosat Ooredoo Hutchison.

Post-merger, Indosat Ooredoo Hutchison will remain listed on the Indonesia Stock Exchange (IDX), with the Indonesian government holding 9,6% of the shares, PT Tiga Telekomunikasi Indonesia 10,8% of the shares, and the public about 14% of the shares.

Indosat Ooredoo shareholders nominated Vikram Sinha and Nicky Lee as Chief Executive Officer (CEO) and Chief Financial Officer (CFO) at Indosat Ooredoo Hutchison, respectively. Meanwhile, Ahmad Al-Neama and Cliff Woo will still carry out their duties as President Director & CEO of Indosat Ooredoo and CEO of H3I until the merger process is complete.

Aim for the second biggest position

Taking into account the scale, financial capability, expertise and network development, Aziz Aluthman Fakhroo, Managing Director of Ooredoo Group, targets this consolidation to bring Indosat Ooredoo Hutchison as the second largest telecommunications operator in Indonesia with a projected annual revenue of up to $3 billion.

In addition, the merger of the two company assets will directly provide benefits to cost efficiency and capital expenditure. The company estimates the process ratio (runrate) annual pretax synergies will reach $300-400 million in the next three to five years.

With the giant business scale owned by the two parent companies, Indosat Ooredoo Hutchison can take advantage of the technology, network, and services owned by the Ooredoo Group and CK Hutchison in the European, Middle East, North Africa and Asia Pacific markets.

"The merger of these companies will provide benefits for various functions, such as procurement activities. After this consolidation, the market mobile devices Indonesia is expected to maintain healthy competition. This situation will attract long-term investment for the telecommunications industry," Aziz said in his official statement.

Group Co-Managing Director of CK Hutchison Holdings Canning Fok added, "We can also expand our network and improve service quality in line with the merger of a larger spectrum that will provide cost efficiency.

“Moreover, we are looking forward to the opportunity to bring the most innovative 5G service to Indonesia at the right time. Currently, CK Hutchison has operated businesses in 12 countries, many of which have successfully deployed 5G networks," he said.

Currently, H3I has 10MHz in the 1800MHz band and 15MHz in 2100MHz to serve 39 million subscribers. Meanwhile, Indosat has a spectrum of 2,5MHz (850MHz), 10MHz (900MHz), 20MHz (1800MHz), and 15MHz (2100MHz) to serve 60 million subscribers with 66.313 BTS 4G. 

Consolidation for efficiency

The corporate actions taken by Indosat Ooredoo and Hutchison add to the long list of Indonesian telecommunications operators that have conducted M&A for more than a decade. Previously, the M&A action had already been carried out by PT Mobile-8 Tbk (FREN) annexing PT Smart Telecom and merging into Smartfren. Then this action was followed by PT XL Axiata Tbk (EXCL) which acquired Axis for IDR 8,6 trillion.

The Ministry of Communication and Information (Kominfo) has actually been trying to encourage the telecommunications industry to consolidate, both through M&A and network cooperation. This is because the competition in the telecommunications industry is very tight due to too many players.

Meanwhile, the telecommunications business is synonymous with investment-intensive because it has to build network infrastructure. With this condition, the growth of the telecommunications industry is increasingly stagnant when cellular penetration is above 100%. The Central Statistics Agency (BPS) noted that cellular card users reached 341,28 million in 2019, or already exceeded the total population of 269,6 million.

According to the Secretary General of the Center for Telecommunication Policy and Regulatory Studies at the Bandung Institute of Technology (ITB) Muhammad Ridwan Effendi, the merger action by Indosat Ooredoo and Hutchison 3 Indonesia will provide significant benefits for the telecommunications industry. The reason is that operators can now encourage business efficiency, especially in network development.

"Even though we have to wait for the results post-audit by the Business Competition Supervisory Commission (KPPU), this merger action is appropriate because the operator's capital and assets will increase. Hopefully, the community will get even greater benefits from this business merger," he said when contacted DailySocial.id.