Background
Indonesia’s telecommunications industry has undergone a significant transformation following the approval of the Extraordinary General Meeting of Shareholders (EGMS) of PT XL Axiata Tbk (XL) and PT Smartfren Telecom Tbk (Smartfren) on March 25, 2025. During the meeting, shareholders officially approved a merger plan, with XL acting as the Surviving Company, forming a new entity called PT XL Smart Telecom Sejahtera Tbk (XLSmart). This merger has also been approved by the Financial Services Authority (OJK), the Indonesia Stock Exchange (IDX), and received principal approval from the Ministry of Communication and Digital Affairs (Kemkomdigi).
This merger marks a major milestone in the consolidation of Indonesia’s telecommunications sector, aiming to create an entity with greater economies of scale, higher cost efficiency, and more competitive service quality in comparison to other telecom operators. With the legal effective date set for April 16, 2025, XL Smart is poised to reshape the telecommunications landscape with a customer base of 94.5 million and an estimated market share of around 25%.
Strategically, the merger is intended to strengthen the company’s position amid intensifying competition within the industry. According to XL Smart President Director Rajeev Sethi, the combined pre-synergy value of the merger is IDR 104 trillion (approximately USD 6.5 billion), with pre-tax synergy potential of USD 300–400 million annually. Company revenues are projected to increase to IDR 45.8 trillion per year, with a combined EBITDA reaching IDR 22.5 trillion. Beyond financials, the integration is also expected to enhance infrastructure efficiency, broaden network coverage, and accelerate the adoption of digital technologies including 5G. In the long term, the merger is aligned with national objectives of expanding digital access and strengthening competitiveness in the information technology-based economy. Nevertheless, this strategic move also entails a number of legal implications within Indonesia’s legal framework.
Discussion
Under Indonesia’s legal system, regulations concerning mergers are governed by Law Number 40 of 2007 concerning Limited Liability Companies (“Company Law”). As stipulated in Article 1 point 9 of the Company Law:
“Merger is a legal act conducted by one or more companies to merge with another existing company, resulting in the transfer by law of the assets and liabilities of the merging companies to the surviving company, and the legal status of the merging companies ceases by operation of law.”
Further, Article 122 of the Company Law stipulates:
- Mergers and consolidations result in the legal dissolution of the merging or consolidating companies.
- The dissolution of such companies occurs without the need for liquidation.
- Upon dissolution:
- Assets and liabilities of the merging or consolidating companies are transferred by law to the surviving or new company;
- Shareholders of the merging or consolidating companies by law become shareholders of the surviving or new company; and
- The merging or consolidating companies cease to exist as legal entities from the effective date of the merger or consolidation.
In this case, Smartfren and ST, the merging companies, are declared legally dissolved without undergoing liquidation. As a consequence, all legal rights and obligations of Smartfren and ST — including contracts, receivables, debts, assets, and obligations to third parties — are transferred to XL Smart.
On the labor side, XL Smart has paid attention to employment matters in this merger. There are no plans for mass layoffs; instead, all employees from the three companies will become part of XL Smart, with their rights and employment conditions remaining unchanged. However, employees who decline the transition will be entitled to severance pay and compensation in accordance with the Labor Law and Government Regulation No. 35 of 2021.
Minority shareholders who disagree with the merger have been granted the right to request the company to repurchase their shares at a fair value. They may also sell back their shares if they do not agree with the merger decision. The buyback price is determined through an independent valuation, and the scheme has been prepared by XL together with major investors such as Axiata Investments and Stellar. This mechanism follows the provisions of Article 62 of the Company Law and is capped at 10% of the issued capital.
Furthermore, the merger process also requires notification to the Indonesian Competition Commission (KPPU), as stipulated in Article 29 of Law No. 5 of 1999 on the Prohibition of Monopolistic Practices and Unfair Business Competition (“Antitrust Law”) and Article 2 paragraph (1) of KPPU Regulation No. 3 of 2023 concerning Assessment of Mergers, Consolidations, or Share and/or Asset Acquisitions that May Lead to Monopolistic Practices and/or Unfair Business Competition (“KPPU Reg. 3/2023”), which states:
Article 29 of the Antitrust Law
“Mergers or consolidations of business entities, or acquisitions of shares as referred to in Article 28, resulting in asset value and/or sales value exceeding a certain amount, must be reported to the Commission no later than 30 (thirty) days from the date of the merger, consolidation, or acquisition.”
Article 2(1) of KPPU Reg. 3/2023
“Business actors are required to submit a Notification to the Commission regarding Mergers, Consolidations, or Acquisitions of Shares and/or Assets that meet the mandatory notification threshold.”
According to Article 5 paragraphs (2) and (4) of Government Regulation No. 57 of 2010 on Mergers or Consolidations of Business Entities and Share Acquisitions of Companies that May Result in Monopolistic Practices and Unfair Business Competition (“GR No. 57/2010”), the reporting thresholds are:
Article 5(2)
“The certain amounts as referred to in paragraph (1) consist of:
a. asset value of IDR 2,500,000,000,000 (two trillion five hundred billion rupiah); and/or
b. sales value of IDR 5,000,000,000,000 (five trillion rupiah).”
Article 5(4)
“The asset and/or sales values referred to in paragraphs (2) and (3) are calculated based on the combined values of:
- The merged or consolidated company, or the company acquiring shares and the acquired company; and
- Entities that directly or indirectly control or are controlled by the merged or acquiring company and the acquired company.”
Given that the transaction value exceeds IDR 5 trillion, XL Smart has fulfilled its obligation to report to KPPU. The Commission responded positively to the public merger announcement, finding no indication of violations of fair competition principles. In addition, the merger process has undergone due diligence and has obtained a fairness opinion from a Public Appraisal Services Office (KJPP), affirming that the merger complies with prevailing laws and regulations, including the Company Law, Capital Market Law, Antitrust Law, and various OJK and government regulations on mergers.
Conclusion
The merger between XL Axiata, Smartfren, and ST resulting in PT XL Smart Telecom Sejahtera Tbk (XLSmart) represents a major step in unifying the strengths of Indonesia’s telecommunications sector. Approved during the EGMS on March 25, 2025, and fully supported by OJK, IDX, and Kemkomdigi, the merger aims not only to scale up operations and enhance efficiency but also to strengthen national digital infrastructure.
Legally, the merger process complies with the Company Law, ensuring the lawful transfer of rights and obligations from Smartfren and ST to XL Smart without the need for liquidation. Employee protections and minority shareholder rights have been well accommodated. Furthermore, reporting obligations to KPPU have been fulfilled, and the merger has been deemed not to harm market competition. With a strong legal foundation and a long-term strategic vision, XL Smart is expected to become a leading player in advancing digital access and addressing technological transformation challenges in Indonesia.