KUALA LUMPUR (May 7): Axiata Group Bhd and Digi.Com Bhd were the top gainers in early trade today after the groups confirmed yesterday they were in talks for a possible merger.

At 9.25am, Axiata rose 55 sen to RM4.59 with 3.74 million shares done while Digi added 46 sen to RM4.98 with 4.49 million shares traded.

Yesterday, Digi said its largest shareholder, Norway-based Telenor Group, is in discussions with Axiata Group Bhd regarding a potential non-cash combination of their telecom and infrastructure assets in Asia. Digi said the proposed merger will be done via a new merged entity (MergedCo), in which Telenor would take a majority stake.

It is anticipated that Telenor, based on equity value, will own 56.5% in the MergedCo and Axiata will own 43.5%, with both parties acknowledging that this is preliminary and subject to adjustments and due diligence. There is also no certainty that these discussions will result in any transaction agreement between the parties, said Digi.

Meanwhile, CIMB IB Research has upgraded Axiata Group Bhd to “Add” at RM4.04 with a higher target price of RM4.80 (from RM4.40), and said Axiata and Telenor may sign a deal to merge their Asia operations by 3Q19.

In a note today, the research house said potential cost synergies are estimated at RM15 billion-20 billion.

“Axiata/Telenor expects the MergedCo to realise RM15bn-20bn of cost synergies, mainly from a) Digi-Celcom’s network/IT system integration, b) procurement (lower pricing from greater scale), c) tower operating efficiencies, d) consolidation of headquarters and e) lower wholesale cost (harmonisation of roaming rates, scale).

“Other benefits we see are: i) stronger MergedCo balance sheet (with additional debt headroom and stronger ratings), ii) ability to tap into Telenor’s strong execution and technology expertise and iii) faster monetisation of passive assets (i.e. IPO of towerco).

“Upgrade to Add from Hold, with a 9% higher target price of RM4.80,” it said.