AXIATA Group Bhd and DiGi.Com Bhd’s shares may be subject to a knee-jerk sell-down following the Statement of Issues (SOI) raised by Malaysian Communications & Multimedia Commission (MCMC) on their proposed merger.
Although the ball is now in both telcos’ courts to address concerns presented within 30 days, RHB Research expects the risk of a dissenting view to be low as the regulator has previously maintained an accommodative stance on market consolidation and merger construct matters.
To re-cap, MCMC has served Axiata and DiGi with SOIs on Friday (April 1) on preliminary concerns over market competition that could arise from their proposed merger.
“The development has also caught the market off guard as Axiata and DiGi’s management teams had earlier indicated – during their results call and briefings – that the integration process is progressing as planned,” observed analyst Jeffrey Tan in a telco sector update.
Both Axiata and DiGi were requested to submit additional comments and information on:
- Their national retail market for mobile and low-speed fixed broadband and data services;
- National retail market for mobile voice and person-to-person (P2P) messaging services (including the related local distribution channel market or markets);
- National wholesale market for mobile voice and P2P messaging services (including network sharing arrangements); and
- National wholesale market for mobile broadband services (including network sharing arrangements).
In a gist, the SOI essentially means that MCMC has reached a view that it is likely to issue an unfavourable decision but reserves its final decision pending the feedback and inputs from the telcos on the points that it has raised.
Both Celcom and DiGi will continue to engage closely with the regulator and are required to respond to their SOIs within 30 days.
“We think the SOIs may have triggered renewed concerns over merger execution,” opined RHB Research.
“The regulator may issue a notice of no objection if it is satisfied that the merger does not have or is not likely to have the effect of substantially lessening competition in the market nor result in a dominant position.”
An obvious setback for now is that the SOIs could potentially delay the timeline for completion of the Axiata-DiGi merger which was initially set for end 2Q 2022, according to RHB Research.
At 10.14am, Axiata was down 2 sen or 0.53% to RM3.77 with 515,000 shares traded, thus valuing the company at RM34.6 bil while DiGi was up 2 sen or 0.51% to RM3.92 with 245,400 shares traded which gave the telco a market capitalisation of RM30.48 bil. – April 4, 2022
