Keppel-SPH buyout offer extends lifeline to embattled M1

The deal could plug losses and pave the way for a clearer corporate strategy.

Against growing market speculation, Keppel Corporation and Singapore Press Holdings (SPH) finally bared their plan to acquire the remaining shares of embattled telco M1 at $2.06 apiece. With SPH willing to invest up to $51.3m to partially fund the offer, the said deal could hit about $930m and give the necessary boost to the struggling telco.

Currently, KepCorp owns 19.3% of M1 through its subsidiary Keppel T&T, whilst SPH has a 13.45% stake. 

Also read: M1's buyout offer by Keppel and SPH likely to get rejected: report

Stiff competition in the telco industry highlighted by the looming arrival of Australia’s TPG has dealt a heavy blow on M1 which has seen its share price plunge more than 50% since its peak in March 2015. M1’s lack of geographical diversification could mean revenue losses of around 1.3% over 2017-2022, according to a research note from DBS Equity Research.

“M1’s business in its current form is unsustainable,” Fitch Solutions ICT analyst Kenny Liew told Singapore Business Review. “It still lacks a converged offering and little more beyond a triple-play service.”

The telco has lost 152,000 prepaid users in Q2 alone whilst revenue from international call services has crashed 27.3% YoY to $10.2m.

Also read: Will Keppel ditch weakening M1 as it aims to go private?

The deal would therefore come as a welcome development for the struggling telco who has yet to see better days after consecutive quarters of decline. “This deal will stop the bleeding and ensure M1 shareholders are able to dispose of their risk,” said Oriano Lizza, sales trader at CMC Markets.  

“Having an individual majority shareholder on board will definitely give M1 more clarity in its business strategy, and there are definitely synergies to be realised by both Keppel and M1 from taking the telco private,” echoed Liew.

However, Lizza notes that the deal is not a complete takeover as Axiata still plays a role as a majority stakeholder but the deal definitely allows SPH/Keppel the ability to drive the business forward in their own terms. 

Beyond a clearer structure of corporate governance, the deal could also give M1 access to their shareholders assets that could lend the much-needed support to its weak segments. “M1 can utilise Keppel’s datacentre assets to supplement its weak enterprise segment, for instance. M1 can also retail Keppel Electric’s energy to its home customers, and bundle these together with its other services to drive revenue,” added Liew. 

Also read: M1 could focus on cybersecurity amidst stiff competition

The rescue by Keppel and SPH over the distressed asset is also a strategic move that fits their respective corporate agendas, observed Lizza, as the digital unit of SPH will be able to benefit from M1’s existing infrastructure.

In their official announcement regarding the offer, Keppel expressed that M1’s capabilities and two million customers in a combined digital platform would provide opportunities for synergies and cross selling of services. "Notwithstanding the challenges currently facing the industry, we see considerable potential in M1 and have developed a transformation plan to sharpen M1's competitiveness," Keppel Corporation CEO Loh Chin Hua said in a statement. 

Also read: M1 braces for lower margins amidst new business growth areas

“We are positive that a clearer business direction will boost innovation in the Singapore telecoms market and shift the focus towards service delivery rather than price competition,” Liew noted.

As of September, M1’s total returns slipped by 2.1% YTD and rose 5.2% QTD.