This article first appeared in The Edge Financial Daily on September 28, 2018

KUALA LUMPUR: Axiata Group Bhd does not consider the takeover offer of S$2.06 (RM6.24) per share for Singapore’s M1 Ltd as attractive.

It is learnt that the telco views the offer price is not deemed to fully reflect the future prospect of M1, in which Axiata holds a 28.69% take.

“There was expectation of [a] better offer than what was announced. Considering the reference price [of S$1.63] used by the offeror was skewed towards the lower-end of M1’s 52-week share price range,” a source told The Edge Financial Daily yesterday.

However, according to the source, Axiata has yet to decide on whether to accept the offer jointly made by Keppel Corp Ltd and Singapore Press Holdings Ltd (SPH).

Based on the offer price, Axiata’s block of 265.41 million shares in hand will be worth S$546.7 million (RM1.66 billion). According to Axiata’s annual report for financial year ended Dec 31, 2017, the carrying value for M1 was RM1.29 billion.

The offer comes at the time when M1’s share price has shed more than 40% from its peak of RM3.15 in March 2015.

Yesterday, Keppel Corp and SPH jointly announced to the Singapore Stock Exchange (SGX) the pre-conditional offer to buy out all the shares in M1 that they do not own. The takeover bid is conducted through a jointly-owned special purpose vehicle, Konnectivity Pte Ltd, in which Keppel Corp owns 80% and SPH holds 20% equity interest.

The pre-conditional offer requires approvals from Singapore’s Info-communications Media Development Authority. The general offer is also conditional upon Konnectivity obtaining more than a 50% stake in M1.

The offer price represents a 26% premium over the last trading price of S$1.63 before the stock was suspended from trading early this week.

There is a muted reaction on the news in terms of Axiata’s share price The stock fell two sen to RM4.73 yesterday, giving it a market capitalisation of RM42.9 billion.

When contacted, JF Apex Securities Bhd senior analyst Lee Cherng Wee said there is no urgent need for Axiata to divest its stake in M1. “They can afford to hold, as there is no urgent financial need for them to divest, like what they did last year,” he said.

Last year, Axiata had indicated its intention to hive off the equity stake in M1, but the “strategic review”, which was done along with Keppel Corp’s 79%-owned subsidiary Keppel Telecommunications & Transportation Ltd and SPH, was called off as proposals from interested parties did not “meet the minimum criteria and parameters as determined by the majority shareholders”.

Nonetheless, a fund manager, who declined to be named, described the offer as a “good exit” for Axiata, from the Singapore market in which competition is expected to intensify with the emergence of the fourth mobile operator TPG Telecom by the end of the year.

“This is a business that has zero pricing power in such a highly competitive environment. It is also high capital expenditure (capex) but [a] low returns business,” he said, adding that valuation of telco stocks are not that attractive nowadays.

MIDF Research’s Martin Foo, on the other hand, said it is difficult to assess the attractiveness of the offer at this juncture as Axiata’s average entry cost for M1 shares was not publicly available.

“Having said that, the cash they are about to receive, if the accept the offer, is quite sizeable from [a] cash flow point of view. If it is fully utilised on debt repayment, we expect it could reduce Axiata’s net debt by 10%,” he noted.

In 2005, when Axiata was part of Telekom Malaysia Bhd, the latter announced to Bursa Malaysia that it bought 118.53 million shares or 12.06% stake in M1, then known as MobileOne Ltd, for S$260.8 million, which worked out to be about S$2.20 per share.

In a note to investors yesterday, AmInvestment Bank analyst Alex Goh said Axiata is likely to accept the offer as its shareholding in M1 is not considered a strategic asset, amid a highly competitive cellular market in Singapore which needs sustained capex rollouts.

Goh noted the sale proceeds of RM1.7 billion will improve Axiata’s gearing levels, with expected net debt-to-earnings before interest, taxes, depreciation and amortisation for financial year 2019 to decrease from 1.6 times to 1.4 times.