International Equity Placement Strategic Alliances: Case at Indosat

7/23/2019 International Equity Placement Strategic Alliances: Case at Indosat

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29111311 Haidir Afesina29111328 Hendra Winata

29111329 Mita Listyatri29111338 Andek Prabowo29111344 Aprian Eka Rahadi29111384 Chairunnisa Mirhelina29111387 Franciscus Xaverius Kresna Paska29111393 Agung Indri Pramantyo

IEPSA at Indosat


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The Scheme of the Process

Indosat was

establlished

1967

1969

Started

promotion

became state-

ownedenterprises

(SOEs)

1980

1994

shares are traded on

the stock exchange

Jakarta, Surabaya, and

New York

The government of

Indonesia sell 41.94% stake

in Indosat to STT (Singapore

Technologies Telemedia,

Pte. Ltd)

2002

Indosat is the second largesttelecommunications company in Indonesia

Market share in telecommunication

market = 30%

Owners: PT Satelindo & PT Indosat Multi

Media Mobile (IM3)

Competitive advantage (end of 1990):monopoly strategy IDD (001)

Indonesian

Government

15%

Public

43.06%

STT

41.94%


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Issues & Problems

Loss of sovereignty and national pride to SingaporeThe sale price that was undervalued

Transparency of the international alliance process.


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The Chronology

September 19th, 2002 when 14 investors were prequalified for the privatization ofIndosat.

November 7th, 2002, 8 preliminary bids were received from preliminary investors

Assessment of Potential Investor :

1. Financial Backing (50%): Strong (100%), Medium (50%), Weak (0%)2. Price (25%): Rank 1-12, 1-Highest, 12-Lowest

3. Commitment to Indosat Strategy (25%): Rank 1-12, 1-Highest, 12-Lowest

Four evaluations teams consisting of representatives from the Ministry of State-owned enterprises, Indosat, PT Danareksa Securitas and Credit Suisse First Boston

(Singapore) Ltd


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Phases

1. Stakeholder Support Variablesa) Labor Union: The Ministry of SOEs was not transparent during privatization

process and seems hide the transaction to Indonesia CommunicationLimited), different than previously offered to ST Telemedia.

b) Politics: Privatization was pulling force from several political parties,supporting different strategic partner

c) House of Representative: There was no official letter from HoR regardingthe intended Indosats IEPSA. However, Ministry of SOE insisted that priorconsultation with HoR was held three times in March and November 2002.

d) Society/People: Privatization process had violated constitution to reserveeconomic sources and that turning government. Shares in Indosat weredangerous in terms of crime and telecommunication market monopoly.

e) Government: It must oblige to IMFs requirement to do restructuringprogram, prior to continue lending financial aid to Indonesia.

f) Company Management: There were resistances from Indosats topmanagement on IEPSA initiation.

I. Planning Phase


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2. Strategic Match:

a) Capacity:

By completing the privatization of Indosat (divestment of Indosat of

4l.94 % shares), the government received US$ 9 M(23.46% higher than

what was expected by APBN-National Revenue Expenditure Budget)

2002 of Rp. 6.5 trillion targeted by Ministry of State-owned Enterprise

for the whole privatization scheme. Through privatization (IEPSA), the

government aimed to improve the performance of the SOE.


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b) Complementarity:Aspect Similarity Difference

Cultural and Management High power distance, low level of uncertainty

avoidance, and masculinity

Time orientation:: Indonesia (loose time),

Singapore (tight time)

Product & Services Cellular services, multimedia, data

communication and internet

STT did not focus on the fixed line

telecommunications.

Market __ Singapore: Saturated Indonesia: Potential

growing

International Alliance

Experience

Indosat: DeTe Mobile (Germany)

STT: StarHub, Equinix, Global Crossing, and Tele

Choice.

__

Management Practices Decision-making: agreement based on consensus,

preferring long-term employment, and possessing

people-oriented leadership style (Hofstede, l984).

__


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Indosat was an important strategic partner for STT toinvest in and enter Indonesian telecommunicationsmarket.

On the other hand, STT was a good partner withfinancing capability, and technological expertise, which

would help increase the Indosat's market share.

As alternative, for Indosat, there were TelecomMalaysia, Telstra in the region to make potentialalliance, in other hand, STT has option to make alliancewith Telkomsel or Excelcomindo in Indonesia.

c) Strategic Importance

2. Phases & Factors


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There are two views of the sides, namely the management and

workers, which is divided into two: supports the privatization and

against the privatization. The reason is sovereignty and national

pride. Therefore the importance to gain the support of uniontrade is through socialization and dialogue.

II. Formation Phase

A. Internal Support

Both sides (Indosat & STT) are committed to build long-term

investments and to avoid the employees lay off. To increase the number of BTS to 1000 units, improve the

profitability, increase quality, increase the number of

customers and increase market share.

B. Strategic Planning


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Culture understanding, a tangible feature that is needed as differentnationalities would have different perspectives in any decision making.Trust and commitment are intangible features that are needed to solveany problems and differences in order to achieve the future goal.

Therefore a successful alliance needs higher levels of trust, a strongcommitment to the alliances

II. Formation Phase

C. Cultural Understanding

a. Trust

b. Commitment


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1. Build Human Resource

Two years after the alliance initiation, it had organized 252 in-house

training sessions, 314 external training programs, investing a total of Rp

15.8 billion. The alliance provided 7 training days per employee or about

3% of total working days for people development.

2. New Corporate Values

Covered with integrity, cooperation, excellence, partnership, and focus to

customers

3. Integrated one-stop excellent service performance to the customers.

2005 decentralized and empowered the organizationto stay close and be

responsive to the customers. The alliance developed this new operating

model by transforming and expanding the roles of the regions to become

more independent and responsive to market development.

III. Operation Phase


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4. Indosat Vision

To become a leading cellular/wireless focused, fully integrated

telecommunications network and services provider in Indonesia

5. Indosat Mission

To provide and develop innovative and quality products, services andsolutions, which offered the best value to the customers

6. Control Mechanism

Audit Committee and Remuneration Committee to assist Board of

Commissioners in the execution of their duties. Each Committee hada written charter outlining its duties and responsibilities that

approved by the Board of Commissioners.

III. Operation Phase


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June 2008, KPPU which upheld the Central Jakarta District Court decided

that Temasek Holding which consists of the companies: STT and Singtel had

violated Article 27 letter (a) of Act No. 5 Year 1999 concerning Prohibition

of Monopolistic Practices and Unfair Business Competition.

a. Pay a fine IDR 15 billion to state treasury

b. Stop ownership of shares in Indosat or Telkomsel by releasing of the

shares at these companies up to 50% within 12 months

Temasek sell its stake at Indosat to Qatar Telecom (Qtel) worth USD 1.8

Billion. STT also considered that within this situation, its better to leave the

alliance when they had acquired gain in the share as much as 300%

IV. Termination Phase


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Firms form strategic alliances to reduce

competition, enhance their competitive

capabilities, gain access to resources, take

advantage of opportunities, build strategic

flexibility, and innovate. To achieve these

objectives, they must select the right partners

and develop trust.

V. Specific Characteristic


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V. Specific Characteristics

Share Price

Based on DCF valuation, the price was much lower than the

valuation of DCF finding. The fair value per share was

Rp43.231 with estimated terminal growth of 3.5%.

During December 2002, the time of alliance started, the

average price in the exchange was Rp8.900.

The Indosats share price during the process of forming the

alliance was about 50% below the shares bought by STT which

was Rp12.950.


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Fair Value associated by terminal value


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Donor Pressure

Bail out from The IMF Indonesia in the Asia financial crisis.

Letter of Intent (LOI) between IMF and Government of Indonesia which

was arranged on October 19, 1998 and May 17, 2000. In the LOI, there

was a clausal of SOEs privatization, and one of the candidates of IEPSA in

2002 was Indosat.

Transparency

Same advisors for the two actions, as it might reduce the possibility of competition among the

financial advisors.

The tender of short listed bidders: Telkom Malaysia and STT, the government did not announce

the offering price of Telkom Malaysia.

Danareksa and Credit Suisse First Boston (CSFB) did not have license to operate in Indonesia. Just

established 1.5 years earlier.



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Initial degree of success of the alliance (in planning andformation phases) was determined primarily by thestate of transparency and stakeholder support.

Although the initial degree of IEPSA was not successful,there were intervening actions set up by both partnersto improve the successfulness in the operation phase.

In the alliance, the transparency variable thatdetermined the initial degree of success was influencedby share price.

That was happened Negative Spread for IndonesiaGovernment in terms Selling Purchase Agreement ofIndosat share to STT.

CONCLUSIONS


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SWOT Analysis

Strenghts Weaknesses

FDI

International image (less government

intervention)

Increase its services and become customer focus

oriented

Potential knowledge management transfer from

Singapore to Indonesia

Stock price < Fair stock price

Acquisition process might have a tendency to

cause certain friction in corporate culture

The eventual control of satellite by foreign partythat would put the state security or confidential

state information in jeopardy

Indosats divestment loaded with public deception

Opportunities Threats

Extra fund to expand BTS and infrastructure for

technology advance

Create jobs

Opportunities to be world class company

Union labor strike

Strategic policy PT.Indosat controlled by foreign

Investment conditions in Indonesia are very

influenced by the political stability

Different culture create conflict


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RECOMMENDATIONS

The main successful factor of company

alliance is transparency, especially in shares

selling price. The corporate valuation must also calculate

from existing condition about corporate value

fairly.


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Relationship of factors and variables at Indosat

www.themegallery.com

Maceoenvironment

Share price Transparency

Trust and

commitment

Stakeholder

support

Initial degree ofsuccess of IEPSA

(Planning Phase)(Formation Phase)

Percentage ofobjectivesachieved

Final degree ofsuccess of IEPSA(Operation Phase)

Intervention relatedto trust andcommitment

Exchange rate ofRupiah

Interest rate

Debt rate

Capital marketindex

Competitors

bidding price

Consultation withHouse of

representative

Conformity withthe regulation

Intervention ofmanagement

Firm

Industry

Macroenvironment

Intervention ofpolititcian

Management

control system

Organizationarrangement

Human resourcemanagement

Communicationand socialization

of program

Intervention ofdonor pressure

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-

+/-+/-

+/-

++

+

+

+

+

+/-

+/-

+/-

+/-

+/-

+/-

- --

-

- -


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Exhibit 4. Number of Subscriber of Indonesian Operator

(*until June 2002)

www.themegallery.com

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2000 2001 2002

Telkomsel

Satelindo

Excelcomindo

Metrosel

Komselindo

Telesera

Mobisel

IM3

Natrindo

Total


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REFERENCE

Ireland, R.D, Hoskisson, R.E, and Hitt, M.A (2011), TheManagement of Strategy; Concept & Cases, 9th Edition,South-Western Cengage Learning

Wandebori, Harimukti (2008), International EquityPlacement Strategic Alliance, Case at Indosat

Wandebori, Hari, Joost de Bruijn2, Eric and JanSteenhuis, Harm (2011), Required Steps of ManagingInternational Equity Placement Strategic Alliance, TheAsian Journal of Technology Management Vol. 4 No. 2,SBM-ITB


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End of Presentation Thank you for your attention

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International Equity Placement Strategic Alliances: Case at Indosat