By Terje Solsvik and Liz Lee
OSLO/KUALA LUMPUR (Reuters) - Norway's Telenor and Malaysia's Axiata Group are in talks to run a jointly owned telecoms giant in South and Southeast Asia with nearly 300 million customers, as they seek to drive up growth in a highly competitive market.
The merged group would be worth $40 billion (30.5 billion pounds), including debt, a person with knowledge of the matter said, making the deal the largest cross-border merger in Asia, excluding China and Japan.
Telenor declined to comment and Axiata did not respond to a request for comment on the value of the combined firm.
"The bottom line is we need the scale, we need the synergy, we need the balance sheet, we need the strong capabilities of both companies. If we can combine that it will be powerful," Axiata group CEO Jamaludin Ibrahim told a news conference.
The proposed deal would combine the two companies' South Asian and Southeast Asian operations, with the Norwegian mobile operator owning 56.5 percent and Axiata owning 43.5 percent, and no cash changing hands, the companies said.
"With its unique portfolio, the MergedCo will be one of the largest telecommunications groups in the region in terms of value, revenue and profit," Axiata said.
The joint firm will have operations in nine countries with a total population of nearly 1 billion people, including Thailand, Malaysia, Bangladesh, Pakistan, and Indonesia, and will compete with firms such as Singapore Telecommunications Ltd.
The merged company will be among the top three operators in the nine markets, analysts said, adding its scale would help it fund itself better in a market where telcos are facing margin pressure as consumers opt for free-voice services.
Telenor last year sold its central European business, seeking to consolidate its operations around a Nordic and an Asian unit. Last month, it bought a $1.7 billion majority stake in Finland's DNA.
The combined entity will have firepower to invest in markets such as Indonesia, driving more regional consolidation, said the person familiar with the deal, who declined to be named as he was not authorised to speak to the media.
The merged company will operate around 60,000 cellphone towers across Asia, making it one of the largest mobile infrastructure firms in the region.
Telenor said a separate stock market listing of the towers business would be possible.
Annual pro-forma revenue for the merged company is estimated at $13 billion, with earnings before interest, tax, depreciation and amortisation of $5.5 billion before savings are realised.
The companies expect the combined group to generate savings of around $5 billion but did not provide a breakdown of where those would come from. The two have overlapping businesses in Malaysia, where they will merge their respective units, Celcom and Digi, under the new umbrella.
Axiata's shares were suspended from trading ahead of the announcement, while Telenor shares rose as much as 4.9 percent after news of the deal.
Analysts were optimistic about the proposed deal but cautioned on regulatory hurdles.
"Overall, we would be positive if this deal materialises as this could reduce the number of competitors, effectively enabling the merged entity to leapfrog to top positions in terms of market share in countries which are involved in the merger," said Alex Goh, an analyst at AmInvestment Bank in Kuala Lumpur.
The merged company will be listed on an international stock exchange as well as in Malaysia in the next few years.
The merger talks come months after Axiata's 37-percent stakeholder Khazanah Nasional Bhd announced a new investment strategy that entailed restructuring its $33 billion portfolio into commercial and strategic holdings.
The companies aim to complete the deal in the third quarter.
Citigroup is advising Telenor on the transaction, while Morgan Stanley is advising Axiata.
(Reporting by Terje Solsvik in OSLO and Liz Lee in KUALA LUMPUR; Additional reporting by Nerijus Adomaitis and Victoria Klesty in OSLO; Writing by Anshuman Daga in SINGAPORE; Editing by Sonali Paul and Himani Sarkar)