According to press reports, Telenor and Axiata called off their discussion on the merger in Asia due to regulatory bottlenecks in the process. What it means for Grameenphone (GP) is that there would be no possible synergy between GP and Axiata’s Edotoco, currently the only tower sharing company in Bangladesh with a proven track record.
The Tower Sharing Guideline of Bangladesh suggests that GP cannot build new towers for network expansion by itself or cannot use the towers owned by other telecom operators. Therefore, GP would have to rely on the tower sharing companies for further network expansion. The leased sites (not owned by GP) is likely to reach 27% of GP’s total network by 2023 and thus may pose some operational threat to GP’s network quality, which is its moat. Also the oligopolistic nature of the tower sharing industry may discourage competitive quality and price offered by the tower companies.
If the merger happened, such operational risks could have reduced due to possible synergy from the merger. Without the merger, the operational risks seemingly prevail. Also, there has been slow progress in implementing the tower sharing guideline since no fruitful negotiation happened among the telecom operators and tower operating companies. Now that the merger has been called off, the negotiation process among the related parties may further delay.
The withdrawal of the merger, however, does not affect our TP for Grameenphone as we did not incorporate any synergy from it in our valuation. Our TP for GP stands at BDT438.8 (ETR of 54.3%) which includes c36% payment for the contingent liability (BDT33/share). Even if we consider the total payment of contingent liability (BDT93/share), the fair value of GP would stand at BDT379/share, offering 26.7% price return. Therefore, we think the impact of the contingent liability claim is already priced in and we reiterate our Buy recommendation.