Telenor, CP Group to merge Thai telecom units in $8.6 billion deal By Reuters

2/2© Reuters. FILE PHOTO: Telenor flag flutters next to the company's headquarters in Fornebu, Norway, June 1, 2017. REUTERS/Ints Kalnins/File Photo2/2

By Chayut Setboonsarng and Anshuman Daga

BANGKOK (Reuters) -Norway's Telenor and Thai conglomerate Charoen Pokphand Group (CP Group) agreed to merge their telecom units in Thailand in a roughly $8.6 billion deal to create a firm with more than half the mobile subscribers in the Southeast Asian country.

The deal, flagged by Telenor on Friday and subject to regulatory approvals, is likely to give ownership of a third of the merged entity each to Telenor and CP Group.

The partnership will arm the two companies better against current market leader Advanced Info Service Pcl (AIS) and give them a deeper pocket to face mounting investment costs for 5G.

Telenor will merge its Total Access Communication (Dtac) with CP Group's True Corporation for a share exchange ratio of 10.221 True shares per Dtac share.

The news comes months after Thai power producer Gulf Energy Development offered to buy Intouch Holdings, which controls AIS, though Gulf Energy has only managed to raise its stake in Intouch to 42.3% so far.

Telenor and CP Group's merged company will have "revenue market share in the low 40% that is similar to AIS," Telenor CEO Sigve Brekke told media. "AIS is still a big brother when it comes to profitability so we will learn as we go."

The combined company will be listed on the Thai stock exchange.

"Telenor's decision to amalgamate its Thailand holdings with True is hardly surprising, given its ASEAN subsidiary's M&As and exits," analyst Thapana Phanich said in a co-branded research report from Jefferies (NYSE:JEF) and TISCO Securities, referring to a similar deal struck in Malaysia earlier this year.

"Dtac has little hope of beating its rivals, or even surviving, in the long run".

Telenor believes regulators will view the deal favourably, Chief Financial Officer Tone Hegland Bachke told a conference call.

"We are positive that we will reach regulatory approval," she said.

The offer of 47.76 baht ($1.45) per Dtac share represents a premium of 15.8% to its Friday close and the offer of 5.09 baht ($0.1549) per True Corp share represents a premium of 17.8% to its close on the same day.

Dtac and True Corp shares rose 10% and 11.5%, respectively, on Monday while the benchmark Thai index was up 0.3%.

Citi is advising Telenor and JPMorgan (NYSE:JPM) is advising CP Group.

($1 = 32.8600 baht)

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