Two sides to the merger now begin due diligence but the fate of the deal ultimately hinges on obtaining regulatory approval. DTAC, 65% owned by Norwegian firm Telenor, has been in the sights of True Corporation since reports of a possible deal gained media attention in 2016. The deal is already generated adverse reaction as a development that, if approved, will reduce market competition according to a leading research body.
A proposed $7.5 billion merger between Thailand’s mobile phone operators DTAC and True has not yet been finalised and is uncertain until the deal completes due diligence, receives regulatory approval and ‘outstanding issues’ are addressed between the parties. The proposed deal envisages the development of a new technology behemoth which will seek venture capital funding to support new startups and other activities to create more value-added services as the telecommunications and internet landscape has begun to change. On Monday, Suphachai Chearavanont of the Charoen Pokphand Group described the new entity that the deal creates as a response to the Thailand 4.0 goal of becoming a regional tech hub for digital services and high value economic activity.
Executives with both the CP Group and Telenor have, in recent days, imposed a blackout on media commentary on a proposed mega-merger which is due to be closely scrutinised by authorities.
Representatives of both mobile operators, True Corporation Plc and Total Access Communication Plc (DTAC), have already begun consultations with the National Broadcasting and Telecommunications Commission (NBTC) to explain the need for a proposed merger between the two mobile phone operators in a $7.5 billion pact unveiled on Monday to the stock exchange in Bangkok after both boards agreed to a deal on Friday last.
The firms are obliged to give the regulatory body 90 days notice before any proposed merger can proceed.
The deal is already generating opposition with Somkiat Tangkitvanich, the President of Thailand Development Research Institute (TDRI) warning, at a virtual press conference on Wednesday, that it will drastically reduce competition in the marketplace.
‘If the merger takes place, there would be an uptick in market concentration to a dangerous level. This would be a big problem that needs consideration,’ he declared.
Deal to be scrutinised by the regulatory agency
The deal will be examined closely by the regulator on the basis of the competition concerns being raised with the new entity becoming the dominant player in the kingdom.
True Corporation Plc is 50% owned by the Charoen Pokphand Group with China Telecom owning 18% while Telenor in Norway owns 65% of DTAC.
On Monday, the Norwegian firm emphasised that the proposed merger was still uncertain as the firms seek regulatory approval and enter a due diligence process.
‘There are open issues outstanding and there is no certainty that the discussions will result in a final agreement. Telenor will not provide any further comment at this stage of the process,’ a statement explained.
CP Group has long been interested in acquiring DTAC with reports of a proposed merger going back to 2016
The deal, if it gets the green light, will be particularly good news for Charoen Pokphand (CP) Holdings, the parent company of True which has long made no secret of its interest in buying the third player which up to recent times had been one of Telenor’s most profitable overseas business concerns.
Rumours of such a deal were first floated in 2016 when Mr Suphachai Chearavanont told reporters that while such a deal had not been planned at that time, his company was interested in the smaller mobile phone operator.
‘I admit that as a business, we are interested in DTAC,’ he said.
Shares in both firms rose on the Bangkok stock exchange on Monday with the proposed deal unveiled
Shares of both Total Access Communication Plc (DTAC) and True Corporation Plc rose strongly on the Stock Exchange of Thailand in Bangkok on Monday as the parent companies of the two firms confirmed to the exchange that a $7.5 billion merger was set to enter a process under the terms of a non-binding agreement.
‘If the deal is completed It will combine telecommunication operations of Telenor’s majority-owned DTAC with TRUE of the CP Group,’ said a statement issued on Monday by Telenor the parent firm of DTAC.
This will see both firms enter into due diligence to each other’s satisfaction and if successful, an international company named Citrine Global Company Ltd will be deployed to buy up the shares of both firms to form a new tech firm which plans to expand in the sector by developing more added-value services.
This process will, at the outset, be subject to regulatory approval which cannot be taken for granted as the parties begin presenting their case to the NBTC.
The new venture formed by the merger will raise further capital to support smaller digital firms and startups.
Proposed venture to create Thailand’s largest internet service provider with plans for new digital services
In a statement, the parties to the merger talked about establishing a new venture capital unit to fund new startups as part of their business plan for the future while it is reported that $110 million to $200 million is to be raised from investors to fund the development of the new entity.
This will include the development of a new digital landscape and services surrounding what will be Thailand’s largest internet service provider.
The shares in the new company will be issued based on a ratio 24.53775 for each share of Total Access Communication Plc (DTAC) while 2.400072 shares will be issued for each existing share in True Corporation Plc.
A tender process has been put forward for outstanding shares in both firms as the promoters plan also to buy up existing shares from third party holders voluntarily.
This process sets a value of ฿5.09 for each True share and ฿47.76 for each Total Access Communication Plc (DTAC) share.
The shares rose by tween to 10 and 11% on the Bangkok stock market on Monday to ฿4.25 and ฿45.50 respectively and are expected to go higher.
Firms to trade normally as the process progresses
Both firms will continue to trade normally while the due diligence process moves ahead while they pursue regulatory approval for the deal.
The combined market share of the merged entity will be 54% of the Thai market.
Before the proposed merger, Total Access Communication Plc (DTAC) had been number three in the competitive Thai market with 19.3 million subscribers while True had 32 million.
The market leader Advanced Info Service (AIS) has a reported 43.7 million subscribers.
DTAC’s figures are off from pre-pandemic levels according to one market analyst this week in Bangkok
It is reported that Total Access Communication Plc (DTAC), whose parent Norwegian firm Telenor serves over 172 million subscribers worldwide, has experienced difficulty regaining its momentum after the country’s exit from recent COVID-19 lockdowns according to one market analyst in Bangkok on Friday when news first broke outlining the deal. It recently posted disappointing earnings.
‘The potential for higher pricing power and capex synergies from a True deal would be positive, also in light of recent weak results from DTAC, which still has not recovered to pre-pandemic operating metrics.’
Total Access Communication Plc (DTAC) has 6.2 million monthly customers with 13.1 million prepaid customers compared to 10.8 million monthly subscribers for TrueMove and 21.2 million top-up users.
Plan heralded as an opportunity for Thai startups just weeks after 2018 startup Bitkub became the country’s first unicorn firm valued at over $1 billion in buyout
The move is being promoted by both sides to the merger as a development that will lead the newly merged firm to become a technology enterprise with plans to support Thai startups and expand its service offerings through new innovations and emerging media.
The deal comes just weeks after Thailand’s first unicorn success story was created when 51% of Bitkub, the phenomenally successful cryptocurrency exchange, was purchased by Siam Commercial Bank in a deal that valued the startup at over $1.05 billion and which is expected to be completed early in the new year.
Thailand has one of the highest levels of internet user penetration figures in the world which is expected to hit 81% of the population in 2022 rising to 84% in 2024 from 76% in 2020.
Thailand is adapting quickly to the internet age
The swiftness and ability with which the Thai population, via smartphones, has been able to take advantage of internet business opportunities and services has been highlighted by technology firms such as Google and Facebook as exemplary, placing the country among the most advanced in Southeast Asia.
‘We believe that the new company can take advantage of this digital shift to support Thailand’s digital leadership role, by taking global technology advancements into attractive services and high-quality products,’ said Sigve Brekke, the President and CEO of Telenor.
The deal on Monday was signed by Jorgen A Rostrup, the executive vice-president of Telenor in Asia and Mr Suphachai of Charoen Pokphand (CP) Holding, the parent company of True Corporation Plc.
Telenor consolidating and strengthening its position in Southeast Asia including selling up in Myanmar
The deal follows a similar merger in Malaysia, in recent months, where a $15 billion deal has been finalised with local partners as the Norwegian firm pursues a strategy of strengthening its holdings in Asia while securing its position and, at the same, time retaining an opportunity for future growth.
In July, the Norwegian firm sold its unit in Myanmar to the Lebanese based M1 Group, owned by the wealthy Mikati family, for $105 million in a deal that is being resisted by authorities there who must give it regulatory approval.
It is understood that Telenor, which owns 54% of the Myanmar firm, is determined to exit that country, as are many other international businesses due to the internal conflict since a coup on February 1st last and international pressure against the military regime which is accused of widespread atrocities.