Indonesian telecom service providers PT XL Axiata Tbk, PT Smartfren Telecom Tbk, and PT Smart Telcom (SmartTel) have signed an agreement to merge into a new entity called PT XLSmart Telecom Sejahtera Tbk (XLSmart) at an enterprise valuation of 104 trillion rupiah ($6.5 billion), according to a statement on Wednesday.
DealStreetAsia reported in August that XL Axiata and Smartfren Telecom have taken their merger talks forward by appointing underwriters for the potential deal.
Following the merger, Axiata Group Berhad (Axiata) and Sinar Mas will become joint controlling shareholders in XLSmart, with a 34.8% stake each, giving them equal rights on strategic decisions.
The merger is expected to create a robust entity serving a significant portion of Indonesia’s telecommunications market. XLSmart will have the scale, financial strength, and expertise to drive investments in digital infrastructure, expand service coverage, and foster innovation for customers while contributing to a healthier and more competitive market, the statement read.
“….It will allow us to cater to the unique infrastructure demands of the Indonesian archipelago by providing a scalable platform that will enhance service coverage, product offering, and quality of network experience. Synergies derived from the merger will improve shareholder value and will be partly reinvested in future growth opportunities,” Vivek Sood, Group Chief Executive Officer of Axiata, said in the statement.
Moreover, the merger is expected to generate significant cost synergies of around $300-400 million following the completion of strategic network integration and resource optimisation.
With a combined 94.51 million mobile subscribers and a market share of 27%, XLSmart is set to generate revenue of 45.4 trillion rupiah ($2.8 billion) and EBITDA of over 22.4 trillion rupiah ($1.4 billion).
The merger plan has been cleared by the boards of directors of XL Axiata, Smartfren, and SmartTel but is still pending regulatory and shareholder approvals as well as certain closing conditions. If all approvals and conditions are met, the merger is expected to be completed in the first half of 2025.
CIMB and JP Morgan are acting as financial advisors for certain entities under Sinar Mas. Deutsche Bank and Maybank are serving as financial advisors for Axiata, while Citibank is acting as the financial advisor for XL Axiata.
Healthy competition
Niko Margaronis, a research analyst at BRI Danareksa Sekuritas, said the merger will lead to cost efficiency and a more predictable profitability path in the telecommunications industry, including for XLSmart, which previously faced congestion, overlapping investments, and uncertainty about whether it could achieve the required returns with four or five operators in the market.
“With more certainty regarding returns, this should enhance confidence among stakeholders and ICT market participants,” he told DealStreetAsia.
Currently, Telkomsel leads the market with a share of approximately 48%, followed by Indosat with around 25-26%. The newly merged company between XL Axiata and Smartfren will have a combined market share of 27%.
Margaronis noted that the telecommunications industry is moving towards healthier competition, with companies focusing on maintaining profitability while expanding fixed broadband services. Fixed broadband penetration in Indonesia remains between 18-23%, which lags behind the Philippines, Thailand, and Vietnam, presenting an untapped growth opportunity.
In addition to current business prospects, the merger will open new investment opportunities beyond telecommunications, such as in AI and digital infrastructure. Indosat, XLSmart’s peer, has already embraced this strategy by expanding into digital technologies such as OTT services, the Internet of Things (IoT), fintech, 5G, big data analytics, and more.
“The telcos are not just in the connectivity business; they need to broaden their scope. AI applications in retail and B2B segments are both attractive and realistic,” Margaronis said.
According to XL Axiata’s presentation, the merger will bring a broader ecosystem to XLSmart, including synergies between LinkNet and Moratel in broadband services, ADA in digital analytics, SM+ for digital telecom infrastructure, and DANA for digital wallet solutions. The presentation also highlighted opportunities in the home broadband segment and enterprise ICT services, including cybersecurity, data centers, SaaS, and IoT.
