Good day and welcome to the Telenor Group conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mrs. Bachke. Please go ahead.
Good morning, everyone. This is Tone Bachke. I am the Group CFO of Telenor. Today, I have with me a representative from Investor Relations, Øystein Myrvold . I have [Alf Steinsethmo], and we also have some other colleagues from the communications team. Today, we are pleased to announce that after having had some dialogue with Axiata, we have now reached a stage where we have decided to enter into due diligence and detailed discussions regarding a potential combination of our two telecom companies in Malaysia, Digi and Celcom. Even though we are now at the point where we would like to inform the market, it is important to state that there is no certainty that these discussions will result in a final agreement. The two companies will, of course, operate separately until the deal is completed.
In this call, I will give an overview of the main rationale and some key parameters for the transaction. Following this introduction, we will open up for a short Q&A focusing on clarifying the message from the call. Telenor run operations in two geographic areas, the Nordics and Asia. We operate the world's most advanced network in some of the world's most advanced and efficient markets. Supported by our global operating model, we focus on making high-quality mobile services affordable and available to the mass markets. This approach has enabled us to connect 180 million customers. Telenor has 25 years of experience from operating in Asia and has successfully leveraged global competence and local know-how to build a leading mobile operation in five markets across the region.
This merger is a natural next step in Telenor Group's focus in the region, and our clearly defined strategy is to create value for shareholders by exploring structural opportunities and drive growth in the Asian portfolio. In Digi, Telenor became an owner in 1999, and we have in these 22 years proudly observed the way the company has developed into an innovative and customer-focused telecom operator, and also how Digi has influenced other operations in the Telenor Group. With this transaction, we are taking the next step, and we reach an important milestone in our Asia strategy, and we are establishing a number one operator in Malaysia. We take the best of two Malaysian companies and two major telecom groups and create a financially and operationally strong company, well prepared for the digital future.
The merged company will play an active and bigger role in creating customer value through innovative products, quality data services, and efficient implementation of new technologies. With its size, the company will have greater resources to be an attractive alternative for the high-value customers, the enterprises, the SMEs, and it will be well-positioned to utilize the opportunities within 5G services such as AI and IoT. The merger will result in a commercially strong and resilient company with synergy potential. Given the early phase of the process, we cannot give any numbers on the synergy potential at this stage. Based on the 2020 numbers, the combined company in 2020 had around $3 billion in revenue. It had an EBITDA of $1.4 billion and 19 million customers, all at the end of last year.
The combined company will have a significant value and be among the largest companies on the Malaysian stock exchange. When the transaction is completed, Axiata and Telenor will be equal partners with 33.1% ownership in the merged company. The proposed transaction will be a stock transaction with Digi purchasing Celcom and Axiata receiving newly issued shares in Digi together with a cash component from Digi and Telenor. The cash component from Digi will be in the form of new debt in the merged company of approximately $400 million, and the cash component from Telenor will be approximately $70 million. The governance structure and guidelines are agreed between the parties and will build on and improve the existing governance of Digi and be according to international standards and the standards set at the Malaysian Bursa stock exchange.
Furthermore, access to global capabilities such as Telenor Global Procurement Company will be important for the efficiency and success of the company. We believe that scale, strong leadership, financial capacity, and execution capabilities will be important factors for the long-term value creation in the telecom sector. To the process. We will now work towards completing the due diligence and the final agreements during the second quarter. Thereafter, the process of receiving required regulatory and other approvals will continue towards the end of the year, and we do expect completion of the transaction either very late this year or in the first quarter next year. From a Telenor perspective, going forward, we will continue to look for ways to strengthen our operational performance, to utilize our operating model and improve the efficiency of the assets based on a value-driven approach.
We will continue to look for structural opportunities where we gain scale, increase our ability to innovate and sustain the investment flexibility to be in the forefront of the digital development. We consider the proposed transaction to be value accretive for the Telenor shareholders and will be supportive of the shareholder remuneration and financial policy going forward. By that, I end my introduction and overview. Please bear with me that we say that we are in the early stage. It's the dialogue at the owners' level, and we will now go into a phase with further detailing out between the two companies involved. By that, I open for a few questions. Please, moderator.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll now take our first question from Andrew Lee of Goldman Sachs. Your line is open. Please go ahead.
Yeah. Good morning, thanks for taking the questions. I had two, basically, one was, I think the key questions the investors are asking. One is the scope of this deal being restricted to Malaysia at the moment whether this makes a deal more or less likely on a pan-Asian basis with Axiata. Secondly, just I had a stab at asking around synergies. Firstly, how should we think about the decision to go ahead with this deal purely in Malaysia and not the broader scope of the deal that you had tried a couple of years ago to merge all of your Telenor and Axiata's Asian operations into one? Why not go for the broader deal? Could we see this deal today as a positive first step towards that? The second question on the synergies.
Do you think that this deal can extract more than its fair share of the original synergy plans that you'd suggested in $5 billion, i.e., by gaining access to more procurement synergies than just the scale that the combined entity would have in Malaysia? Thank you.
Thank you for that. You should look at this transaction alone. This is the agreement we've reached now. We learned a lot in the last process, and it was a very great experience. We departed as friends, and we have now decided to join forces in Malaysia. There is nothing beyond this included in this deal. However, as I did say, we will continue to look for value-creating opportunities in our Asian portfolio in Telenor today. That will be an objective going forward. In respect of Axiata, this is the deal that is on the table. Synergies. I think we have to say that it's too early to say anything on the magnitude and definitely to compare it with the last transaction.
Based on this being, of course, the dialogue at the ownership level, we have not yet started looking into how the synergies can be extracted by combining the two entities. That is something we would work on now going forward, and we will, of course, inform you in due course as soon as we have anything further to report in this area. Thank you.
Thank you. Can I just ask a quick follow-up question to the first, which is, we had different reasons over the years as to why you couldn't get to the finish line on talks with Axiata, and one of them had been the complexity of the Malaysian deal. Would you see the Malaysian deal as the more difficult end of the various deals you'd be doing within a broader Axiata deal, i.e., would a broader deal be easier than the specific Malaysian deal in terms of getting regulatory approval and government approval?
Yes, I can understand the question, but I hope you understand it's impossible for me to answer that. The last time there were some reasons we couldn't proceed. We never commented on that. I know there were speculations, but we cannot say anything further on this at that stage other than that we're very happy to be back and looking at this transaction now.
Understood. Thank you.
Thank you. We will now take our next question from Maurice Patrick of Barclays. Your line is open. Please go ahead.
Yeah, morning, guys. Thanks for hosting the call. It is appreciated. I know it's hard to add too much given it's early stage. A couple from me. The first one is just whether or not the timing of the transaction is linked to the government plans to create this 5G special purpose vehicle. There's lots of press speculation, but also I think the government's been sourced talking about creating a state-sponsored 5G network. Is it that that's crystallizing the [driver] of the deal now? The second question is, on the multiple, maybe I've got my math wrong, but it seems like you're doing this deal at a lower multiple than with Digi trades, i.e., the implied multiple for Celcom is lower than Digi's implied multiple. Do you agree with that? If so, I guess why? Thank you.
Thank you, Maurice. We consider this deal to be a very good deal. It will be a deal that enable us to take part in the development and going forward in Malaysia. Of course, 5G is an important part of their future development. However, we all know that the 5G will take some years to materialize. We still think that based on independently of that, this transaction will be beneficial both for the shareholders and the customers, and we will still be in a 4G world for quite some years. To the valuation, I can't comment on the valuation. You, of course, are good to do the math. We think this is a good transaction for both parties, and that is what I can comment on in this respect. I'm sorry for that.
That's all right. Thank you very much again for doing the call.
Thank you. We'll now take our next question from Alex Goh of AmInvestment Bank. Your line is open. Please go ahead.
Thank you so much. I have a couple of questions. The first is, who will own the balance of the merged company? Both you and Axiata will own 33.1%, so there will be a 34% still outstanding. Who will own that 34% remaining stake in the merged entity, right? My second question is, what is Telenor's overall long-term plans in Malaysia, given that Telenor has divested from certain countries. Over the longer term, would that also be part of your exit plan from Malaysia? I understand that is a tough question, perhaps could you give us a bit of clarity in your overall long-term plan for Malaysia? My third question is regarding the telco towers for both Digi as well as for Celcom Axiata. Would there be a need to dispose of some of the telco towers? How about the spectrum?
Would there be a certain excess spectrum that you may actually have to give up to the government? That's my questions for now.
Yes. Thank you very much. I will try to answer it quickly. The balance shareholders will be the current shareholders of Digi. Telenor today owns 49% of Digi, meaning that there is 51% other shareholders. These will, of course, be part of the new combined entity as well. This is shareholders over the stock exchange, some of which are large pension funds and some are ordinary investors. When it comes to our outlook in Malaysia, we have been 22 years in Malaysia. We are very committed to the country. We have great belief for the development of this market. For us, this is a natural next step to create a strong telecom provider in Malaysia, and we are very proud to be part of that company going forward as well. We have a very firm strategy on being present in these Asian markets.
The telco towers you asked about, the towers in Digi will, of course, be part of the combined entity. There is no tower deal included beyond that. That is not part of this deal. I think by that, I will open up for three more callers with one question each. Thank you.
Thank you. We'll now take our next question from Frank of DNB Markets.
I just wanted to elaborate a little bit on the future outlook for Telenor in Asia, given this. Clearly, you've had for many years a well-known strategy, which used to be called Control or Exit. That hasn't been perhaps reiterated in that same wording for a while. Given this deal, I would assume that this implies that the current proposed ownership would imply then a deconsolidation of Digi and the continuation of the operations in the form of being an associated company in Telenor's accounts. How do you view your ability to control and manage ESG risks and so on, and being in control of the operations? Given this new situation, do you think is the Control or Exit strategy still valid, or is that more of a historic thing of the past?
Can you please update us on your thoughts on this and how this could potentially then also have implications for How you think about some of the other consolidation opportunities and in the Asian footprint overall, really? Thank you.
Thank you very much, Frank, and I understand the question. By a 33.1% ownership, it will not be part of the consolidated financials of the Telenor Group going forward. That is correct. It will be now shown in our accounts as an associated company. That means that, of course, that the revenue and EBITDA will be excluding the revenue and EBITDA from Digi as we have it today and from the merged company in the future. We will get it in under the net income statement. To the question on governance. We are, of course, as you know, we are looking for opportunities that we consider can create growth and also, or enable us to create growth and also to create value. In this situation, we will end up with a 33.1% ownership.
In this process towards arriving here, a significant part of this process for us has also been to conduct a thorough evaluation of how we, in this setting, will be able to control and influence the operations and the governance of the company, as you said. We find that this transaction includes appropriate structures and agreements that provide us with confidence that the merged co- companies would follow the standards that we find appropriate going forward as well. Was there anything that I missed in your question, Frank?
Well, thanks for that. It might be then the last element of the question with regards to the overall picture in Asia, whether do you see this kind of associated company structures perhaps as opening up for more partial ownership and deconsolidations or more operations in Asia? To what extent is to really open up for partial exits of some of these operations over time? Yeah, that's basically in the light of the old control or exit strategy [audio distortion] .
Yes. Thank you, Frank. We have, and we will continue to have a value-driven approach, as we say. In this situation, we are today number three player in the Malaysian market through Digi, and we are now creating a number one market position player. We think that is a value in itself, and it will be a large and very strong company. Going forward, we will continue to have the same value-driven approach. We will continue to look for these in-market consolidation opportunities that we see now. That could also be in the future that this structure could be used in other markets if that is the opportunity. We will, in our approach, focus on creating strong players in the various markets. We will focus on having value creation for the shareholders and a good customer offering.
We will, of course, focus on having the governance that we find appropriate and that is according to the standards we find necessary to operate. We will continue to look for opportunities as we go forward.
Okay. Thank you.
Thank you. Okay, I understand we have callers.
We'll now take our next.
Yeah .
Go ahead, Mrs. Bachke.
Yes. I understand we have five callers now or something, please continue.
Sure. Thank you. We'll now take our next question from Johanna. Your line is open. Please go ahead.
Yes. Hello, Johanna Ahlqvist from SEB. Again, thank you for hosting this call. Short question on regulatory approval. I'm just wondering how certain you are to get regulatory approval given the 40% market share of the combined entity on the mobile side? I'm just wondering how this process works? Have you been in discussions with the regulator already now, or is it something that you will start presenting as of today, or how is that process developing? Thank you.
Yes. In respect of the size of the company, it will, of course, if you look at it from a kind of a narrow mobile market perspective, it will of course have around the market shares of 40%. However, what we see in several markets now is that, of course, that there are convergence and with the broadband and other similar projects, and then we also have the OTT players. If we look at it from other angles, it will not be that of a dominant player in the local market. It, of course, depends on which perspective you take. When it comes to the regulatory approvals, we cannot go into details on that. It is the defined process that we will follow. We have had a good dialogue with key stakeholders, but it will follow the ordinary process that is required in this market.
That will start after we have reached agreements between the parties involved in this transaction. We will approach the governments and regulatory governments to get their approvals. To seek their approval.
Thank you.
Thank you.
Thank you. We will now take another question from Andre of UBS. Your line is open. Please go ahead.
Hi there. Thanks for taking my question. I was just curious about how the communication around this deal evolved going into this announcement. You flagged Malaysia as a potential market for consolidation when you reported your first Q results. We had a local press talking about this about a month ago, and then Axiata basically saying this is not on the table, also a couple of weeks ago. Can you maybe just explain what some of the roadblocks going into this were, because they, Axiata in particular, were mentioning the 5G setup being an obstacle to this. If that indeed was the hurdle from your perspective, or how did that get resolved in the end? Thank you.
Thank you. I hope you understand I cannot speculate anything in what have been the various communications in the local markets. We've had dialogue with Axiata, and we have now reached this stage, so I cannot say anything further on that and in respect of the process that we've had. You know since 2019 there has been on-and-off speculations we have observed in the various markets, but we can't comment on that.
Thank you. Just into the 5G angle in particular, because that was the reason why Axiata itself, the management of Axiata, was saying this is not on the table. From your perspective, this is not an issue whatsoever, the planned 5G set up?
I'm not aware of the communication from Axiata, and I can't comment on that. We think that this transaction will be a good company to take a significant and active part in the 5G development in Malaysia going forward. Until we reach that stage, we will of course continue to work to deliver high-quality 4G services. That is what I can say on this topic.
Thank you very much.
Thank you. Mrs. Bachke, are we open to take more questions?
Yeah, we can take a few more.
Perfect. Thank you ever so much. We'll now take our next question from Peter Nielsen of ABG. Your line is open. Please go ahead.
Yeah, thank you. Morning, Tone. You've obviously commented on a range of the issues. I'd like to return to the one that perhaps the most dramatic change, namely your willingness to accept less than 50% control, as was highlighted in an earlier question. You obviously have a history with joint ventures at Telenor. Do you feel confident, Tone, that you will be able to convince investors that the necessary conditions and governance is in place to prevent a repeat of previous years' experiences with joint ventures in this regard, please? Any comments here on elaborations would be appreciated. Thank you.
Yes. Thank you, Peter. Of course, we've had some learnings from the past in having these kind of positions, and I think it's fair to say that we have learnt a lot, and we've taken these learnings with us. The governance structure and the guidelines that we have agreed between the main partners mean that we will continue to have a considerable operational influence through the BOD representation, and also we will have the ability to appoint some key positions in the merged company. This, together with how we foresee to operate this company, means that we will avoid some of the experiences we've had from the past. This has, of course, been very high on the agenda on our side as well during this process.
Okay. Thank you very much, Tone.
Thank you. If you find that your question has been answered, you may remove yourself from the queue by pressing star two. We'll now take our last question from Usman Ghazi of Berenberg. Your line is open. Please go ahead.
Hello. Thank you very much. A very quick one from me, please. I understand that the mobile towers that Digi owns is part of this transaction, but I just wanted to understand if the towers that Celcom owns, whether that is part of the new entity, because I'm aware that Axiata holds the towers within EDOTCO. if you could clarify which towers this new entity will be owning or not. Thank you.
Yes, as you say, Digi's towers will be part of the transaction, and they will go into the merged company. Celcom, to my knowledge, only have a very few towers, and they will also go into the merged co. As you say, EDOTCO is a separate standalone company, and that is not part of this transaction other than the ordinary business relationship that exists between EDOTCO and the two companies.
I see. Given Axiata's interest in listing EDOTCO at a separate time, is it important for the towers at Digi to be within this new co, or are you agnostic for this new co to be owning towers or not?
This is something I cannot speculate on. How this develops going forward will be under mandate of the Board of Directors of the new company. What we're looking at now is the transaction as we stated here, and then that would be for a later stage. I'm afraid I can't comment on that.
Yes. Okay. Thank you very much. Appreciate it.
Yeah. Thank you very much, everyone, for calling. I believe we've been through most of your questions. Again, thank you very much for dialing in and for your good questions, and we look forward to meeting you soon again. Thank you.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.