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Smartfren Telecom, controlled by the Widjaja family’s Sinar Mas, has signed a non-binding memorandum of understanding with Malaysia’s Axiata Group to explore a potential merger of their telecommunications businesses in Indonesia. This proposed merger is still in the early stages of evaluation, with both parties conducting due diligence. If the discussion results in a business combination, Axiata and Sinar Mas aim to remain major shareholders in the merged entity.

Indonesia, Southeast Asia’s largest economy, currently has four mobile phone carriers, with XL Axiata and Smartfren being the smallest. Combining these two companies would create a larger entity with a combined subscriber base of about 94 million. This move would give the enlarged entity a stronger footing to compete with bigger rivals such as Indosat Ooredoo Hutchison and state-owned Telkomsel, which have 97 million and 159 million subscribers, respectively.

The telecommunications industry in Indonesia has been consolidating in recent years due to fierce competition. In 2022, CK Hutchison Holdings and Qatar’s Ooredoo merged their Indonesian units in a deal worth $6 billion. Smartfren has been facing losses and ballooning debts, despite recording its first profit in two decades in 2022. The company reported a net loss of 108 billion rupiah in the previous year. Last month, Smartfren announced plans to raise 8.5 trillion rupiah through a rights issue, with most of the proceeds intended to pay off the company’s debt.

The Widjaja family, with a net worth of $10.8 billion, is ranked No. 4 on Indonesia’s list of 50 Richest individuals. The family controls the Sinar Mas group, which has interests in various sectors including telecommunications, paper, financial services, real estate, agribusiness, and mining.

The potential merger between Smartfren and Axiata could have a significant impact on the telecommunications industry in Indonesia, creating a stronger player in the market. This move comes as the industry continues to witness consolidation and competition intensifies. The involvement of the Widjaja family’s Sinar Mas group and Malaysia’s Axiata Group highlights the strategic importance of this potential merger and the desire to enhance their positions in the Indonesian market.

As discussions progress and due diligence is completed, both parties will need to navigate regulatory approvals and potential challenges to finalize the merger. The outcome of these discussions could reshape the telecommunications landscape in Indonesia and potentially lead to a more competitive market with stronger players vying for market share. The merger could also bring about operational synergies and efficiencies, benefiting both companies and their subscribers.

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