FACULTY OF BUSINESS & MANAGEMENT

BMFM 33141 MERGERS, ACQUISITIONS & CORPORATE

RESTRUCTURING
GROUP ASSIGNMENT (CASE STUDY)
ACADEMIC YEAR 2021/2022
SEMESTER MARCH 2022

CLO2: Apply the valuation techniques to M&A assessment and decision making.

LECTURER: DR TAN SUANG SIN

Case Study 1 [Total: 15 marks]

The Malaysia Communications and Multimedia Commission (MCMC) has formally received
Digi.Com Bhd’s subsidiary Digi Telecommunications Sdn Bhd’s merger application involving
the proposed merger of Celcom Axiata Bhd and Digi.Com’s mobile telecommunication network
operations. Celcom Axiata is an operating unit of Axiata Group.

As part of the merger transaction, Axiata (Group) will receive newly issued shares in Digi.Com
representing 33.1% post-transaction shareholding and cash equalisation amount of around RM2
billion, of which RM1.7 billion to come from Digi.Com as new debt, balance of RM300 million
from Telenor (Asia). The merged company would be named Celcom Digi Bhd and would be
listed on Bursa.

According to Bursa Malaysia, Digi.Com has a total amount of 7.78 billion issued shares and
Axiata Group has 9.18 billion issued shares.

[Source: The Edge Markets]

a) Briefly explain the type of merger between Digi.Com and Axiata.

(2 marks)

b) State THREE (3) motivations for this merger.

(3 marks)

c) Given that the present earnings of Digi.Com at RM304.55 million and Axiata at
RM818.90 million, calculate the earnings per share of Digi.Com and Axiata.

(3 marks)
 d) Using the closing price of RM4.01 per share of Digi.Com and RM3.77 per share of
Axiata, compute the approximate combine equity value of Digi.Com and Axiata if the
merger is approved.

(4 marks)

e) Based on the relevant information given below, compute the expected earnings per share
of Celcom Digi Bhd after the merger between Digi.Com and Axiata.

Digi.Com Axiata
Present earnings RM304.55 million RM818.90 million
Share Price RM4.01 RM3.77
Number of outstanding shares 7.78 billion 9.18 billion

(3 marks)

Case Study 2 [Total: 25 marks]

Azia Auto, an automobile parts supplier, has made an offer to acquire Ryanair, creator of
software for the airline industry. The offer is to pay Ryanair’ shareholders the current market
value of their stock in Azia Auto’s stock. The relevant information it used in those calculations is
given below:

Azia Auto Ryanair

Share Price RM40 RM25
Number of outstanding share (millions) 40 15
Earnings (millions) RM100 RM30

Although the total earnings of the combined company will not increase and are estimated to be
RM130 million, Charles Wilhelm (treasurer of Azia Auto) argues that there are two attractive
reasons to merge. First, Wilhelm says, “The merger of Azia Auto and Ryanair will result in
lower risk for our shareholders because of the diversification effect.” Second, Wilhelm also says,
“If our EPS increases, our stock price will increase in line with the EPS increase because our P/E
will stay the same.”

Ryanair’ managers are not interested in the offer by Azia Auto. The managers, instead, approach
Samudera Fly, Inc., which is in the same industry as Ryanair, to see if it would be interested in
acquiring Ryanair. Samudera Fly is interested, and both companies believe there will be
synergies from this acquisition. If Samudera Fly were to acquire Ryanair, it would do so by
paying RM400 million in cash.

Samudera Fly is somewhat concerned whether anti-competitive regulators would consider the
acquisition of Ryanair an anti-competitive violation. The market in which the two companies
operate consists of eight competitors. The largest company has a 25% market share. Samudera
Fly has the second-largest market share of 20%. Five companies, including Ryanair, each have a
market share of 10%. The smallest company has a 5% market share.

a) Compare between the acquisition of Ryanair by Azia Auto and the acquisition of Ryanair
Samudera Fly, respectively.

(6 marks)

b) If Ryanair were to be acquired by Azia Auto under the terms of the original offer,
compute the post-merger EPS of the new company.

(3 marks)

c) Statement 1: The merger will result in lower risk for shareholders

Statement 2: Stock price will increase in line with the EPS increase
Comment whether Wilhelm’s two statements about his shareholders benefiting from the
diversification effect of the merger and about the increase in the stock price, respectively,
correct.

(4 marks)

d) Explain the role of defense plays by Samudera Fly in the acquisition scenario.

(3 marks)

e) If Samudera Fly and Ryanair attempt to merge, the increase in the Herfindahl–Hirschman
Index (HHI) and the probable action by the Malaysian Aviation Commission Act 2015
(MAVCOM), respectively, in response to the merger announcement.

(8 marks)