Information on the Target

The merger between PT XL Axiata Tbk, PT Smartfren Telecom Tbk, and PT Smart Telecom will create a new telecommunications entity named PT XLSmart Telecom Sejahtera Tbk. This newly formed organization is set to become a significant player in the Indonesian telecommunications sector, combining the strengths and expertise of three reputable operators to drive innovation, improve service quality, and expand digital connectivity across the country.

Pre-synergy, the merger is valued at over IDR 104 trillion (~USD 6.5 billion). With an expected pro forma revenue exceeding IDR 45.4 trillion (USD 2.8 billion) and an EBITDA forecast of over IDR 22.4 trillion (USD 1.4 billion), XLSmart aims to capitalize on scale, financial strength, and operational expertise to enhance digital infrastructure investments and customer service offerings.

Industry Overview in Indonesia

Indonesia's telecommunications industry is characterized by rapid growth, especially with the increasing demand for high-speed internet and mobile connectivity. The country, being an archipelago with diverse geographical and demographic features, presents unique challenges and opportunities in the telecom sector. Investments in infrastructure, especially in 5G technology, have become imperative to bridge the digital divide.

Moreover, regulatory initiatives by the Indonesian government aim to foster a competitive market environment, encouraging investments and innovations among local players. This environment is conducive for mergers and acquisitions, as companies seek to optimize their market positions, enhance their service portfolios, and achieve economies of scale to better serve their customers.

As of now, the combined subscriber base of the merging companies stands at approximately 94.51 million, capturing around 27% of the market share. The merger will likely boost the competitive landscape, pushing companies to improve their services and innovate continuously to retain and attract customers.

With the government encouraging digital transformation through various initiatives and policies, this merger aligns with strategic objectives aimed at creating a more inclusive digital economy for Indonesia, making it essential for the country’s growth trajectory.

The Rationale Behind the Deal

The primary rationale for the merger is to accelerate the digital future of Indonesia by leveraging the complementary strengths of XL Axiata, Smartfren, and SmartTel. This strategic combination is expected to provide better connectivity, enhanced service offerings, and seamless innovations across different customer segments—from individual users to large corporations and public sectors.

Additionally, the merger is projected to yield significant pre-tax synergies estimated between USD 300 million and USD 400 million, resulting from the optimization of network resources and the integration of strategic operations. This consolidation will not only improve the companies' operational efficiencies but also enhance their competitive positioning within the industry.

Information about the Investor

Axiata Group Berhad and Sinar Mas are the joint controlling shareholders of the newly formed XLSmart entity, each holding 34.8% of the shares with equal influence over the strategic direction of the company. Axiata is renowned for its expertise in executing successful mergers within the telecommunications sector, demonstrating a solid commitment to enhancing shareholder value and driving growth through strategic initiatives.

With a strong history in promoting digital advancement in Southeast Asian countries, Axiata's experience will be pivotal in navigating the complexities of this merger, ensuring seamless integration while aligning with local market dynamics facilitated by Sinar Mas’s deep understanding of the Indonesian landscape.

View of Dealert

The merger of PT XL Axiata, PT Smartfren, and PT SmartTElecom is poised to be a transformative move for the telecommunications industry in Indonesia. With significant synergies anticipated and a broad customer base to serve, XLSmart is positioned to capitalize on market opportunities that will arise from this consolidation. The enhanced financial strength and breadth of services will likely attract more customers and improve their competitiveness.

The strategic direction undertaken in this merger aligns well with Indonesia's digital goals. The expanded portfolio and enhanced service offerings thanks to the combined resources will provide customers with better experiences, leading to increased loyalty and market share. The emphasis on innovative technologies such as 5G implementation and digital infrastructure development further supports the rationale behind this merger.

However, the success of this merger will heavily rely on effective integration and the ability to manage operational challenges during the transition. Ensuring a smooth alignment of cultures and operations between the merging entities will be crucial in realizing the anticipated benefits. If managed effectively, this investment could significantly uplift the telecommunications landscape and contribute toward bridging the digital divide in Indonesia.

In conclusion, while there are inherent risks associated with mergers, the potential rewards stemming from this union make it a compelling investment opportunity. The combined entity's ability to deliver improved connectivity, innovative solutions, and competitive pricing stands to drive sustainable growth, benefiting both shareholders and the larger Indonesian community.

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