CEO Morning Brief

Three Tune Talk Shareholders Want to Stop Axiata From Selling Its Tune Talk Shares in Proposed Celcom-Digi Merger

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Publish date: Wed, 30 Mar 2022, 10:26 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (Oct 8): Three shareholders of Tune Talk Sdn Bhd have filed for a court injunction to stop Axiata Group Bhd from including the sale of a 35% Tune Talk stake in the proposed merger of Celcom Axiata Bhd with Digi.com Bhd.

The three are Padda Gurtaj Singh, East Pacific Capital Pte Ltd and Tune Strategic Investments Ltd.

According to court documents sighted by The Edge, the plaintiffs have applied for Axiata to be prohibited from including 5.25 million Tune Talk shares representing a 35% stake registered in the name of Celcom Axiata in the proposed merger with Digi.com.

The 35% stake in Tune Talk is held via Celcom Mobile Sdn Bhd, a wholly-owned unit of Celcom Axiata.

According to the originating summons, the plaintiffs are also seeking an injunction against Celcom Axiata or its agents from amending, varying or otherwise changing the terms on which Celcom Axiata provides network services to Tune Talk.

The plaintiffs contend that changes in the control over Celcom Mobile Sdn Bhd, a unit of Celcom Axiata, will allow DiGi, which was named as a competitor in Tune Talk’s 2008 shareholders’ agreement, to gain an indirect shareholding in the latter. This, the plaintiffs said, goes against Tune Talk’s 2008 shareholders’ agreement,

The plaintiffs also argued that the deal will significantly reduce Tune Talk’s total addressable market, of which 50% will be co-owned by the merged Celcom-Digi entity.

The defendants are Axiata, Celcom Axiata Bhd, Celcom Mobile Sdn Bhd, Tune Talk, Tune Group Sdn Bhd, Datuk Lim Kian Onn, Christopher Mark Anthony Lankaster, Datuk Seri Kalimullah Hassan and Jason Lo, the court document shows.

Tune Group, which is controlled by Tan Sri Tony Fernandes and Datuk Kamarudin Meranun, owns a 25.14% stake in Tune Talk.

Defendants such as Lim, Kalimullah and Lankaster are among other shareholders of Tune Talk besides the plaintiffs.

According to CTOS information, Gurtaj Singh has a 9.77% stake In Tune Talk and East Pacific has 5.85%, while Tune Strategic has 14.4%. Collectively, the three plaintiffs have 30.02%.

Court document shows that East Pacific Capital has former Credit Suisse banker Dennis Nicholas Melka as its sole shareholder, while Tune Strategic is wholly-owned by its founder, businessman Datuk Mohd Aqliff Shane Abdullah.

While the proposed merger includes the 35% stake Axiata/Celcom has in Tune Talk, the remaining 65% stake in Tune Talk held by the other shareholders is left out.

Financial data show Tune Talk registered a profit of RM62.2 million on revenue of RM472.3 million for the financial year ended Dec 31, 2020 (FY20).

Tune Talk, a mobile virtual network operator (MVNO) that is using Celcom’s spectrum, incurred cost of traffic expenses and materials of RM352 million, according to latest available data.

Comparatively, Celcom Axiata booked profit after tax and minority interests of RM677.43 million on revenue of RM6.22 billion in FY20.

It is not known the valuation of Tune Talk that Axiata and Digi.com have pegged in their merger talks. Axiata has declined to respond to questions from The Edge.

According to the one of the plaintiff’s affidavits, it was argued that 36% of Celcom Axiata’s profit comes from Tune Talk’s volume where Tune Talk’s voice and data flows through Celcom Axiata’s network on a 50:50 revenue share presently.

It argued that Tune Talk has over 1 million subscribers representing some 12% of Celcom Axiata’s reported subscribers. The affidavit further raised that post-merger, Celcom Axiata can unilaterally terminate or vary the terms of the MVNO agreement.

A telco analyst contacted said it was too early to draw any conclusion whether or not this would have any impact on the Celcom-Digi merger.

“It’ll be interesting to see what is the reason behind the injunction and if a value from the Tune Talk stake or any earnings from it was calculated into the merger valuation,” the analyst added.

Source: TheEdge - 30 Mar 2022

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