CK Hutchison and Ooredoo have signed the agreement to merge their businesses in Indonesia. The merged company, bringing together operators Tri Indonesia and Indosat, will be called Indosat Ooredoo Hutchison and valued at about USD 6 billion.
The companies said the deal will create a digital telecom and internet company well-placed to deliver more value for all shareholders, customers and for Indonesia. The company becomes the second largest mobile operator in Indonesia, with estimated annual revenues of USD 3 billion.
Cost savings and synergies
Indosat Ooredoo and Tri expect the merged company to benefit from cost and capex synergies, leading to accretive returns to all stakeholders. Annual run rate pre-tax synergies of around USD 300-400 million are expected to be realized over the coming 3-5 years. Synergies will come from merging the networks, technologies, products and services from both companies, and taking advantage of their parent companies' operations in Europe, the Middle East, North Africa and Asia Pacific, with economies of scale in areas such as procurement. The companies added that the Indonesian mobile market is expected to keep its healthy level of competition after the merger, attractive to long-term investment across the industry.
New company to be jointly managed
Ooredoo Group currently has a controlling 65 percent stake in Indosat Ooredoo through its unit Ooredoo Asia. Under the terms of the agreement, CK Hutchison will receive newly issued shares in Indosat Ooredoo amounting to 21.8 percent of the merged business. It will also receive new shares in PT Tiga Telekomunikasi Indonesia amounting to 10.8 percent of the new entity.
At the same time, CK Hutchison will acquire half of Ooredoo Asia by exchanging its new 21.8 percent stake in Indosat Ooredoo Hutchison for a 33.3 percent stake in Ooredoo Asia. It will buy an additional 16.7 percent stake from Ooredoo Group for USD 387 million in cash. After these transactions close, CK Hutchison and Ooredoo will each own 50 percent of Ooredoo Asia, which will be renamed Ooredoo Hutchison Asia. The new firm will retain its controlling 65.6 percent ownership stake in Indosat Ooredoo Hutchison, which will be jointly controlled by both Ooredoo and CK Hutchison.
The merged company will remain listed on the Indonesian Stock Exchange, with the government of Indonesia retaining a 9.6 percent stake, PT Tiga Telekomunikasi Indonesia holding a 10.8 percent stake, and other public shareholders owning about 14.0 percent.
Vikram Sinha to lead new firm
The new firm will be led by Vikram Sinha as CEO and Nicky Lee as CFO. Ahmad Al-Neama will remain president director and CEO of Indosat Ooredoo and Cliff Woo will remain as CEO of Tri until completion of the merger. Upon completion, both will join the board of commissioners of the company, subject to the necessary Indosat Ooredoo approvals.
Sinha is currently the COO of Indosat and Nicky Lee the finance head of Asian telecommunications at CK Hutchison.
The transaction should complete by the end of this year, assuming all of the necessary approvals are obtained. Ooredoo and Hutchison first started discussing a merger last December and extended the negotiations several times.
