Post on 11-Feb-2018
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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V. Specific Characteristic
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.
V. Specific Characteristic
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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