Southeast Asia Joins Global Telecom M&A Hang-Up

Southeast Asia just hung up on telecom M&A. Norway’s Telenor and Malaysia’s Axiata ended talks to create a $40 billion regional champion. A complicated structure and nationalist sentiment ultimately eclipsed the allure of big synergies, making it the latest deal to hit trouble in a crowded industry hungry for cash.

The combination was a whopper. Back in May, the two companies said their venture would have created a giant with 300 million customers across South Asia and Southeast Asia. Total savings were estimated at $5 billion. For Axiata, in which Malaysian state wealth fund Khazanah is a major shareholder, it was a welcome leap into the big leagues

Size matters in telecom, as the demands of investing in new technologies weigh on balance sheets, but in this case nine countries turned out to be too many to wrangle. Kuala Lumpur was, in the end, reluctant to cede control of its biggest wireless carrier to an entity in which Telenor would have owned 56.5%, or to sacrifice jobs at a difficult political moment. None of that will help encourage investment into Malaysia, which is already being hurt by a decline in global trade.

Even if those thorny concerns could have been overcome, there were other problems to surmount. Indonesia, where Telenor would have gained a foothold as part of the transaction, was unhappy about Norway’s perceived role in a European campaign against palm oil imports and would have blocked a combination, sources said.

The two companies say they could talk again. That may be wishful thinking. Evidence from around the world, including the legal fight to unite TPG Telecom and Vodafone Hutchison Australia and the opposition by U.S. states to Sprint’s merger with T-Mobile US, suggests consolidation is getting increasingly difficult, whether for competition, security or other reasons.

For now, Telenor, which lost more than $1 billion of market value on Friday, will have to rethink its Asian expansion plans. Axiata, whose earnings growth has been disappointing, can try cutting more costs and seek a way to extract additional value from its towers business, perhaps by taking it public. And given how hard mergers are becoming, telecom investors everywhere have their own new calls to make.―ZAWYA