M. Shamsul Haque 

The DT published a report today(11.4.16) on the above topic. It informs us that the merger proposal was submitted for final approval of the PM and the PMO office has sought for more documents before it gave its decision. The DT report indicated that the TC division while submitting the proposal recommended charging a fee on the deal for merger. It is not known how much was the charge recommended and on what basis. It says that the BTRC held a public hearing on the merger agreement and they also formed a two member expert committee “to make a market analysis report”. Reportedly experts came in favour of the deal. DT also reported that market insiders gave positive feedback in terms of industry structure, competiveness and bringing greater benefits to the customers for different services. The merger is planned to serve 41 million customers. Upon completion , Axiata the MY company will hold 68.3% controlling stake in the new entity, Bharti the owner of Robi will hold 25% and the remaining 6.7 percent will be held by NTT DOCOMO of Japan, an existing shareholder.
The merger deal is actually known as a matter of the markets for corporate controls in the finance literature. This one is a horizontal merger between Robi and Airtel and is expected to create economies of scale or scope by enhance market power. As of now Grameen phone is the behemoth in the mobile industry and dominating as a market leader. It has sold some shares to the public, 10% only.
Two issues may raised about the merger deal of the two firms. One is the fee/charge to be levied by the BT. It actually amounts to a tax on the value of the company, like a wealth tax. Since these companies have been paying income tax on their profits regularly charging additional fee at the time of merger will actually reduce its value addition from the operating and financial synergy. That may actually nullify the objective of the merger to gain more market power. Hence it is not justified to charge fees as no new operating income is generated now. Principally the govt should wait and allow more value to be created in the future and then tax income accordingly. Taking service capacity away by taxation is confiscatory and not good for development of business opportunities in the country. This will give wrong signal to multinationals to invest in the country. Already there is short fall in private sector investment in BD, falling to 21% of the GDP, one and half percent points lower than previous year.
The PMO’s office, rather should advise the merged companies to raise more capital from the share market and increase their financial strength further to compete with the big rival, the Grameen phone. BD has a large and growing mobile market. Besides telephony the networks are engaged in offering mobile financial services to the vast areas of the country which is not served by financial institutions. We are also going to see more use of the network s to offer online education to learners, especially to school children. In this case there is a clear case of ignoring revenue generation imperative as much as it may please our finance minister who is scrambling for additional revenue to avoid further budget deficits.
The writer is a professor of finance at NUB.