Bakrie Telecom to buy Telkom unit for $1 billion: sources

By Janeman Latul and Joseph Chaney

JAKARTA (BestGrowthStock) – Indonesian mobile phone firm PT Bakrie Telecom (BTEL.JK: ) is set to acquire the CDMA unit of PT Telekomunikasi Indonesia (TLKM.JK: ) in a share deal worth up to $1 billion, sources with knowledge of the deal told Reuters on Wednesday.

The two companies have been in talks for some time but have not yet given any details of the terms of any deal.

The acquisition, the biggest in Indonesian telecoms since Qatar Telecom (QTEL.QA: ) bought a stake in PT Indosat (ISAT.JK: ) for $1.35 billion in 2008, would give Bakrie Telecom dominance in the fast-growing local CDMA market.

Bakrie Telecom will issue new shares and swap them for Telkom’s CDMA assets worth between 7 trillion rupiah and 9 trillion ($784.4 million – $1 billion) in a deal which seeks to take advantage of a stock rally that has taken the Jakarta index (.JKSE: ) to record highs this month.

The deal may be signed by December, said two sources, who declined to be identified because the talks were not public.

“Both parties need to conduct one final valuation to complete the plan,” said one of the sources. “We expect the deal will be fully completed by early next year.”

Shares in Bakrie Telecom ended flat after falling as much as 4 percent on the news of a share issue to fund a CDMA deal between the two firms that has been mooted since June. Telkom fell 1.1 percent, versus a Jakarta market up 1.8 percent.

Bakrie Telecom, controlled by PT Bakrie & Brothers (BNBR.JK: ), was not immediately available for comment, while a Telkom spokesman said talks on a deal were ongoing.

STRONG PRESENCE

TelkomFlexi, Telkom’s CDMA unit, is Indonesia’s biggest CDMA operator with about 15 million subscribers and a strong presence outside the main Java island, while Bakrie Telecom with 11 million subscribers is strong in Java.

The combined operation would rank as the fourth-largest cellular operator after Telkom, PT Indosat (ISAT.JK: ) and PT XL Axiata (EXCL.JK: ), and would give Bakrie Telecom more than 90 percent of the CDMA market.

One of the sources close to the deal said Telkom had been searching for a partner for its CDMA unit for almost two years before decided to do a deal with Bakrie Telecom.

Other operators of the CDMA standard, which has long been overshadowed by the more global GSM, have been struggling in Indonesia and the deal is likely to lead to more consolidation in one of the world’s most crowded telecommunications markets.

CDMA firm PT Mobile-8 Telecom (FREN.JK: ) is struggling to pay debt and is looking for a partnership with a CDMA unit of Sinar Mas Group, another small operator.

However, Indonesia’s anti-trust agency has raised concerns on the Bakrie-Telkom deal and has asked both companies to explain the details before going ahead.

Harry Su, head of research at PT Bahana Securities in Jakarta, said he believed the deal would still go ahead. “It is possible that this (monopoly issue) could be become an obstacle … but I think an amicable solution can eventually be reached.”

Bakrie Telecom is part of the Bakrie group, a conglomerate controlled by the politically connected Bakrie family. It appointed Credit Suisse (CSGN.VX: ) as advisor for the deal while Telkom picked UBS (UBSN.VX: )(UBS.N: ).

(Editing by Neil Chatterjee and David Holmes)

($1=8937 Rupiah)

Bakrie Telecom to buy Telkom unit for $1 billion: sources