Thai conglomerate CP Group and the Norwegian telecom operator Telenor Group have agreed to merge their Thailand-based telecom service units, True Corporation and dtac respectively. The deal is estimated to create synergies three times larger than that Telenor recently created with Malaysia’s Axiata Group.
The merged company will also raise a venture capital fund of $100-200 million to invest in digital startups.
The two parties said on Monday that the merged entity will be “a leading telecommunications service provider” in Thailand. “The transaction will create a company with around 55 million customers and pro-forma revenues of around $6.9 billion in 2020,” the CP Group said in a statement.
The transaction will consist of a voluntary tender offer (VTO) followed by an amalgamation of dtac and True. The VTO price of dtac will be 47.76 baht and True will be 5.09 baht, respectively, which both represent a 25% premium to their one-month volume-weighted average price.
The agreed exchange ratio is 10.221 True shares per dtac share, or 1 dtac share to 24.53775 shares in the future company.
CP Group and Telenor are expected to each own a third of the new company.
“Based on this ownership, we expect a reasonable cash outlay for Telenor in the area of $300-500 million. This will both secure the solid ownership in the new company, and at the same time secure a good free float of shares in the combined company,” Telenor said in a conference call on Monday.
The merged entity will be listed on the stock exchange of Thailand, as the parties aim to finalise the deal by Q1 2022.
Telenor’s Asia commitment
“We are also building on our ambition to have leading market positions in our [Asian] markets,” the Norwegian telecom firm said in the conference call, adding that it will also scout for structural opportunities across the region.
Prior to the agreement with CP Group, Telenor had a similar transaction in Malaysia with Axiata as a partner in June. Telenor then said it estimated a potential value accretion through cost and capex synergies of around 8 billion ringgit (nearly $2 billion) on a net present value basis.
“On certain parameters, this transaction [in Thailand] will be around or two or three times the size of the transaction that we launched in Malaysia,” Telenor said, referring to the 8 billion ringgit figure.
It had also stated in June that the merged Malaysian company will be valued at a combined pre-synergy equity value of close to 50 billion ringgit.
“The telecom and technology sectors are key to enabling Thailand to move up the development curve and to create broad-based prosperity,” said Suphachai Chearavanont, CEO of CP Group and chairman of True Corporation.
Jørgen A. Rostrup, executive vice president of Telenor Group and head of Telenor Asia, added: “The proposed transaction will advance our strategy to strengthen our presence in Asia, create value, and support long-term market development in the region. We have a long-standing commitment to both Thailand and the Asian region, and this collaboration will strengthen it further.”
The recent consolidation moves can offset Telenor’s loss in Myanmar, a market in political crisis where Telenor said earlier to sell its local business to Lebanese investment firm M1 Group.
Telenor wrote off the value of its Myanmar unit in May, booking a loss of 6.5 billion Norwegian crowns ($752 million).
The firm has since faced caveats from several human rights and civil groups.
“Since the new regime took over, we carried out thorough assessments on available alternatives in a deteriorating situation, including substantial assessments of the option of staying in Myanmar,” Telenor said in September, however adding that continued presence in Myanmar was “impossible for Telenor Group”.
If Telenor exits Myanmar, it will give up 18 million subscribers in this market.
Consolidation concerns
If the agreement with Thailand’s CP Group becomes reality, the new company will be a formidable rival in the local telecom and tech market.
A joint venture between Telenor and CP Group, dtac had 169.2 billion baht in assets in Q3 2021. The quarter saw dtac post a revenue of 59.9 billion baht compared to the entire 2020’s 79.2 billion baht.
dtac said in October that it was “fast forwarding its digital agenda to go beyond core telecom and connectivity services” to become a “super app”.
The telecom network operator targets to have 10 million monthly active users and a five-fold growth in digital acquisition in 2023, on the back of one million customers using its digital channels on a daily basis.
Meanwhile, True Corporation, which is nearly 50% owned by CP Group, claims it is Thailand’s 5G leader with 1.5 million 5G users through its TrueMove brand. TrueMove is also the country’s second-largest mobile operator with 32 million subscribers.
Meanwhile, the firm has 4.5 million TrueOnline broadband subscribers, and 3.5 million TrueVisions pay TV customers, as well as operates fintech platform TrueDigital.
Responding to the antitrust concern, Telenor said: “The number two and three players are having more challenges in financial performance than the leading player. This is our rationale for seeking this solution.”
The firm added that it was positive about obtaining regulatory approval, as the consolidation will better contribute to the digitalisation in Thailand.
The biggest telco in Thailand is Advanced Info Service, with almost 43 million subscribers, according to Statista.com.
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