Axiata (Axiata Group Berhad) and XL Axiata (PT XL Axiata Tbk) today announced the signing of a conditional share purchase agreement to jointly acquire a combined 66.03% equity interest in Link Net (PT Link Net Tbk), a fixed broadband and cable TV operator in Indonesia. Specifically, Axiata and XL Axiata are acquiring their 66% equity stake in Link Net from private equity firm CVC Capital Partners (Asia Link Dewa Pte Ltd) and Lippo Group / Riady Family (PT First Media Tbk).

Axiata and XL Axiata have agreed to a purchase consideration of 4,800 Indonesian Rupiah per share for the 1.82 billion shares owned by CVC and Lippo Group in Link Net. Therefore, Axiata and XL Axiata are valuing this 66% stake in Link Net at $606m USD (8.72 trillion Indonesian Rupiah). In turn, this implies an equity value of $918m USD (13.2 trillion Indonesian Rupiah) for 100% of the equity interests in Link Net.

Finally, Axiata and XL Axiata expect to complete the acquisition and a mandatory tender offer (see below) in Q3 2022.

Under the terms of the share purchase agreement, Axiata will acquire 46.03% and XL Axiata will acquire 20.00% of the equity interests in Link Net. As a result, this acquisition will initiate a mandatory tender offer.

Mandatory Tender Offer

Axiata and XL Axiata will be obligated to undertake a mandatory tender offer to acquire the remaining 33.97% of Link Net’s shares, as part of Indonesia’s regulatory requirements.

Financing

Axiata and XL Axiata will fund their acquisition and mandatory tender offer through a combination of internally generated funds and/or bank borrowings.

Synergies

Synergies exist between XL Axiata and Link Net through their combined business in wireless communication services, sharing of backbone & transmission networks, relationships with customers in Indonesia, and an increased focus on enterprise opportunities. For example, XL Axiata notes the possibility of converged / bundled offerings between fixed broadband and mobile services for retail consumers of the company.

Link Net is a provider of high-speed broadband and cable TV in Indonesia, reaching 2.8 million homes across 23 cities. Presently, Link Net serves a subscriber base of 860k, implying a penetration rate of ~31%.

Link Net supports its services through a 10.6k-mile (17.0k-kilometer) fiber optic backbone. Through this network, Link Net offers services to both residential and enterprise customers.

Financials

For the nine months ended September 30, 2021, Link Net generated revenue of $225m USD (3.24 trillion Indonesian Rupiah) and EBITDA of $130m USD (1.87 trillion Indonesian Rupiah).

Market

Indonesia is an underpenetrated fixed broadband market, which currently stands at only 13.4% in terms of household penetration. At the same time, the fixed broadband market is growing at a 14.4% compound annual growth rate (CAGR). Finally, household penetration will increase to 27.5% by 2026, driven by an expanding addressable market, escalating data use, and growth in Indonesia’s disposable income per capita.

Jonathan Kim covers Fiber for Dgtl Infra, including Zayo Group (private), Cogent Communications (NASDAQ: CCOI), Uniti Group (NASDAQ: UNIT), and Lumen Technologies (NYSE: LUMN). Within Fiber, Jonathan focuses on the sub-sectors of wholesale / dark fiber, enterprise fiber, fiber-to-the-home (FTTH), and subsea cables.

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