Telekom Malaysia yesterday (December 10) announced that it was paying $314 million for a 27.3% stake in PT Excelcomindo Pratama (Excelcom, XL). Telekom Malaysia also gets management and board control as well as an option to increase its stake in 2005 to over 50%.
There is some lack of clarity over whose shares Telekom Malaysia is buying. The 27.3% stake is the same amount as that held by Verizon and Mitsui before the transaction. However the deal struck by Telekom Malaysia was with the majority owner, the Rajawali Group.
It is likely therefore that the Rajawali Group had bought back the shares from Verizon and Mitsui, to which it then added the controls and options and then on sold them to Telekom Malaysia for a higher price. Telekom Malaysia advisers on the transaction Citigroup would not comment on whose shares were actually bought.
At $314 million, the price equates to an 8.8 times multiple of Excelcom's 12 month historic EBITDA. This compares to a price of 8.5 times trailing EBITDA that STT paid when it bought into Indosat in 2002.
STT has since doubled its money on that deal. Indeed it is the potential growth of the Indonesian market that makes this deal so attractive for Telekom Malaysia.
Indonesia only has a 9.4% mobile penetration rate compared to 25% for China and the Philippines, countries which have similar levels of GDP per capita. Excelcom itself has been growing rapidly, but it is still the number three player after Telkomsel and Indosat.
Indeed buying Excelcom was perhaps the last chance for any regional telecom operator to gain control of a sizeable yet rapidly growing telco in one of Asia's most underserved markets, a fact further reflected in the price paid by Telekom Malaysia.
However Telekom Malaysia was not alone in bidding for the company. Excelcom, Rajawali and their advisers Morgan Stanley and CSFB had been running an auction for the assets in recent months. It is understood that five contenders were still bidding in recent weeks: SK Telecom, Vodafone, Telenor, PLDT and Telekom Malaysia.
"This was an auction plain and simple," says one analyst on the deal. "The highest bidder wins." According to Abdul Wahid Omar, the CEO of Telekom Malaysia, the deal will see many synergies between Excelcom and Celcom, Telekom Malaysia's mobile unit, especially in voice and data traffic.
"There are also ample opportunities for sharing of transmission assets and savings on capital investment," he says. "We see many opportunities for development of joint products across both markets".
The fact that Rajawali is selling out at this time, is in no small part to the huge increase in cost it takes to go from a 9% penetration to a 25% penetration. Both of Excelcom's bigger rivals have announced spending plans for 2005 in the hundreds of millions of dollars. Having a strong partner like Telekom Malaysia became something of a necessity.
"We believe Telekom Malaysia is well placed to take XL to the next level of development," says Peter Sondakh, CEO of the Rajawali Group. "We are very pleased to have Telekom Malaysia as our partner and to participate in XL's ongoing growth."
Unlisted Excelcom is still planning to go ahead with planned IPO some time in 2005.
