Will Merger of PT Angkasa Pura I and PT Angkasa Pura II Maximise The Value of Shareholders?

: The government's program of restructuring state-owned enterprises continues to this day. From 2016 to March 2022, the number of SOE continuously decrease. In March 2022, the number of SOEs only 41 companies. The number of SOEs has reduced by 52.87% from the previous year. The plan will continue in 2023 by cutting 41 companies to 30 companies and operating in 12 clusters. PT Angkasa Pura I and PT Angkasa Pura II are the following plans for restructuring state-owned enterprises. The merger of the two companies is expected to provide synergy opportunities in operational efficiency. The results showed synergy between PT Angkasa Pura I and PT Angkasa Pura II. Based on calculations using the Discounted Cash Flow (DCF) method, the company value of PT Angkasa Pura I is IDR 4,169,267 and the company value of PT Angkasa Pura II is IDR 9,784,469 with a total combined company value of IDR 13,953,736. While the value of the two companies when synergizing is IDR 25,051,653. The synergy value obtained for both companies is IDR 11,097,917. By determining the premium value of 40% - 60%, the premium value reaches IDR 1,667,707


INTRODUCTION
In running a business, various strategies can be used to develop the company to the desired level. One business strategy that is often used to create a business is a merger. Based on Article 2 of Government Regulation of the Republic of Indonesia Number 43 of 2005 states that the purpose of SOE merger is to increase efficiency, transparency, and professionalism to nourish SOE (Pemerintah Pusat, 2005). From 2016 to March 2022, the number of SOE continuously decrease. In March 2022, the number of SOEs only 41 companies. The number of SOEs has reduced by 52.87% from the previous year. The plan will continue in 2023 by cutting 41 companies to 30 companies and operating in 12 clusters. One of the sectors that will be part of this merger is the state-owned airport management company PT Angkasa Pura I and PT Angkasa Pura II. The merger between PT Angkasa Pura I and PT Angkasa Pura II emerged as an attractive strategic option. The merger of PT Angkasa Pura I and PT Angkasa Pura II potentially can create opportunities to take advantage of scale, combine resources and improve operational efficiency. However, the decision to merge between Angkasa Pura I and Angkasa Pura II requires further study and conducting a feasibility study to assess whether the merger will provide benefits for both companies and the development of the aviation industry in Indonesia as a whole because the results of the company's merger do not always guarantee that the company will create efficiency after the merger. In this research, author will use the Discounted Cash Flow (DCF) method to determine whether the resulting synergies will potentially maximize shareholder value.

. Key Assumptions
In determining the value of synergy, the first step is to find the enterprise value of each company. The following are some of the assumptions used in company valuation such as risk-free rate, risk premium, perpetuity growth, and corporate tax. For risk free rate assuming that the 10-year Indonesia Government Bond Yield on April 10, 2023, is 6.73%. Meanwhile, the risk premium is 9.23% based on the equity risk premium from Damodaran on January 5, 2023.

Cost of Capital
The Weighted Average Cost of Capital (WACC) in this study is used as a discount rate for PT Angkasa Pura I and PT Angkasa Pura II. The following is the equation for calculating WACC.

Equation 1
WACC = (w i × r i ) + (w s × r s ) The following are the components used in calculating the WACC.

A. Cost of Equity
In determining the cost of equity according to Gitman et al., (2015) is to use the Capital Asset Pricing Model (CAPM) formula as follows.

Equation 2
r s = R f + [β(r m − R f )] In determining beta for PT Angkasa Pura I and PT Angkasa Pura II is using levered beta using the following equation.

Equation 3
β unlevered = β current [1 + (1 − T) × D/E] Using Equation 3, assume that average debt-to-equity ratio for peer companies PT Angkasa Pura I is 0.8345 and average debt-to-equity ratio for peer companies PT Angkasa Pura II is 0.7971 obtained unlevered beta for PT Angkasa Pura I is 0.28 and PT Angkasa Pura II is 0.29.

Equation 4
β levered = β unlevered [1 + (1 − T) × D/E] After calculated unlevered beta is calculate levered beta using Equation 3. Assuming a debt-to-equity ratio (DER) from PT Angkasa Pura I is 3.393 and debt-to-equity ratio from PT Angkasa Pura II is 1.418, the value of levered beta PT Angkasa Pura I is 1.014 and levered beta for PT Angkasa Pura II is 0.630. Using Equation 2, the value cost of equity PT Angkasa Pura I is 16.09% and PT Angkasa Pura II is 12.54%. According to Damodaran (2016), in determining cost of debt for PT Angkasa Pura I and PT Angkasa Pura II can use the following equation Finally for WACC calculate using this equation.

Equation 5
r i = (R f + Default Spread) × (1 − T) According to Pefindo (2023), PT Angkasa Pura I and PT Angkasa Pura II has an AA+ bond rating, meaning the default risk for two companies is 1.00%. Using Equation 5, value of cost of debt PT Angkasa Pura I and PT Angkasa Pura II is 6.03%. After completed a components for WACC, using Equation 1 the value of WACC PT Angkasa Pura I and PT Angkasa Pura II is shown in Table 2.

Reinvestment Rate
The following is assumptions of reinvestment rate for PT Angkasa Pura I and PT Angkasa Pura II in Table 3 and Table 4.  Using the assumptions in Table 5, the enterprise value of PT Angkasa Pura I is calculated to be IDR 4,169,267, and the enterprise value of PT Angkasa Pura II is IDR 9,784,469.

B. Valuing Synergy
1. Growth Synergy PT Angkasa Pura I and PT Angkasa Pura II are two airport service companies with the same business segment. The two companies have different operational areas. PT Angkasa Pura I has 15 airports spread on the east side, while PT Angkasa Pura II has 20 airports on the west. With the merger of two companies the author assumes that there will be some synergies achieved from the merger of the two companies as follows.

A. Manage many Airports in Indonesia
By merging, the company will manage more airports in Indonesia, with 35 airports under the same entity. The new company will manage several big airports, such as Soekarno-Hatta in Jakarta, Ngurah Rai in Bali, and Sultan Hasanuddin in Makassar, providing scale and expanding geographical reach.

B. Airline Integration
The aviation concept in Indonesia used the hub and spoke concept by connecting airlines from two points and combining passengers to different fingers from their hubs, so the merging of the two companies will be a solution for an extensive network and increase company revenue. Hub is a large airport that is the center of a region. Meanwhile, spoke is the airports other than hubs in one area. For the illustration, Soekarno Hatta Airport (CGK) is used as a hub by ABC Airlines. As a result, people who wants to travel with ABC Airlines from Sepinggan Airport (BPN) to Minangkabau Airport (PDG) must first transit at CGK. By increasing the effectiveness of the hub and spoke model after the merger, the new company will improve connectivity between existing airports in Indonesia so that there will be more airlines and expansion of new routes to these airports. For illustration, tthe BPN-PDG route makes BPN as a spoke. After the company merger, PT Angkasa Pura I and PT Angkasa Pura II can work with airlines to provide direct flights from BPN to PDG so that passengers who want to travel on that route can use the services provided by the airlines. The result is that there will be an increase in passenger traffic which will affect the company's revenue.

C. Collaboration with Airlines Company
The new company can cooperate with the airlines on a larger scale. This collaboration can benefit the company by reviving less profitable routes and increasing domestic and international connectivity. Based on the points above, the following are the assumptions for calculating the growth rate of PT Angkasa Pura I and PT Angkasa Pura II. In the last five years, both companies have experienced a decline in growth rates due to the pandemic in 2020-2021. However, in 2022 there has been a recovery for the two companies. In 2022, traffic for both companies will experience a significant increase. According to the annual reports of the two companies, there was an increase of 84% for PT Angkasa Pura I and around 97% for PT Angkasa Pura II. Based on the information and assumptions above, the combined growth without synergy of -6.10% will be adjusted to the potential for a merger of companies and an increase in traffic during 2022. According to Schosser & Wittmer (2015) the estimated growth synergy in airline mergers companies 2.5% -8.2% . Therefore, after look at the performance of the two companies, the author assumes that the growth synergy generated by the two companies is 3%.

Cost Savings
PT Angkasa Pura I and PT Angkasa Pura II are airport management companies and do not sell physical goods or products, so there is no COGS in the financial statements of the two companies. The two companies use operational expenses related to airport management and operations as a substitute for cost savings. Table 7 shows the percentage of operating expenses based on operating revenue. Following are the cost savings that can generate from the merger of PT Angkasa Pura I and PT Angkasa Pura II in several aspects.

A. Consolidation of Infrastructure
Infrastructure consolidation is an important step to achieve operational synergies. Infrastructure consolidation involves merging or merging facilities and systems owned by the two companies to optimize resource use and reduce redundancy.

B. Consolidation of Overlapping Departments and Functions
After the merger two companies, departments, and functions with similar duties and responsibilities in the two companies can be combined into one. As companies engaged in the aviation industry and airport services, PT Angkasa Pura I and PT Angkasa Pura II have several departments with similar organizations. Departments that may overlap include operations and service department, finance department, human capital department, engineering department, and marketing department.

C. Employee Efficiency
Employee reductions can be one of the factors contributing to cost savings efficiency. Employee efficiency can be identified from overlapping departments based on the previous point.

D. Reduction of Training Costs
There is potential to reduce the cost of new employee training and company orientation. By consolidating the human capital departments of both companies, the companies can reduce costs associated with training and onboarding new employees. According to Annual Report PT Angkasa Pura I experienced a decrease in efficiency by 1.65%, and Annual Report PT Angkasa Pura II experienced an increase in efficiency by 5.88%. From these assumptions and the potential cost savings mentioned in the points above, the authors assume that the cost savings are 4.62% when companies merge. The combined cost of equity for the two companies is 12.544%. The combined value of the cost of equity is almost the same as the value of the cost of equity from PT Angkasa Pura II because the unlevered beta values of the two companies are similar. The value of the unlevered beta of the two companies is similar.

Combine Cost of Debt
The new cost of debt calculation is the same as using the previous method. Because the two companies have the exact cost of debt of 6.03%, the combined cost of debt is 6.03%. Based on the combine WACC calculation, Table 9 result a lower cost of capital than before, meaning that a lower cost of capital will increase firm value and reduce risk

Value of Synergy
The following is a table for calculating the synergy value of the two companies using the assumptions mentioned in the previous section.

Premium Offers
In merger and acquisition, acquirer company sometimes have to pay a premium for the target company. According to Block (2000) a merger premium of 40 to 60 percent (or more) is paid over the price of the acquired company prior to the merger. Based on these calculations, the premium calculation value is as follows. Based on the calculations in Table 11, PT Angkasa Pura II must pay a premium in the range of IDR 1,667,707 -IDR 2,501,560. If a premium of 60% has to be paid, the premium is still lower than the potential synergy generated when the companies merge. Therefore, a premium of 60% is still acceptable.

Purchase Price
The purchase price is the amount that the acquiring company must pay to the target company's shareholders. In this instance, the purchase price equals the value of the target company plus the premium. By using a premium value with a range of IDR To determine whether the merger maximises shareholder value, the change in shareholder value after the merger must be compared to shareholder value prior to the merger. If the change in shareholder value is positive, then it can be said that the merger maximises shareholder value.
Change in Shareholder Value = 11,097,917 − 5,836,974 = 5,260,943 Change in Shareholder Value = 11,097,917 − 6,670,827 = 4,427,090 The result from change in shareholder value after merger is positive IDR 4,427,090 -IDR 5,260,943. The merger has the potential to maximise shareholder value. This indicates that the anticipated synergy value of the merger exceeds the purchase price and can provide shareholders with additional value.

D. Implementation Plan
The following is an implementation plan for PT Angkasa Pura I and PT Angkasa Pura II in the merger process.  Complete the transition to the new organizational structure, including completion of change management and decision making.  Complete post-merger monitoring and evaluation to ensure success and efficiency.  Develop long-term action plans to maximize synergies and business opportunities.

CONCLUSION AND RECOMMENDATION A. Conclusion
Based on the calculated results using Discounted Cash Flow with the key assumptions, the enterprise value of PT Angkasa Pura I is IDR 4,169,267. In contrast, the enterprise value of PT Angkasa Pura II is IDR 9,784,469. Thus, the combined value of the companies, without synergy, is IDR 13,953,736. Furthermore, by assuming that when PT Angkasa Pura I and PT Angkasa Pura II merge, there will be synergies such as operating synergy (growth synergy and cost-saving) and financial synergy (reduction in the cost of capital), the combined calculation of the two companies using Discounted Cash Flow is IDR 25,051,653. By taking the difference between the combined values of the two companies with synergy and those of the two companies without synergy, the synergy value amounts to IDR 11,097,917. By determining a premium value of 40% -60%, the premium amounts to IDR 1,667,707 -IDR 2,501,560. Therefore, within this premium range, the purchase price is IDR 5,836,974 -IDR 6,670,827. The merger of PT Angkasa Pura I and PT Angkasa Pura II can potentially maximize shareholder value within the IDR 4,427,090 -IDR 5,260,943 range.

B. Recommendations
The analysis suggests several recommendations for PT Angkasa Pura I and PT Angkasa Pura II's merger. First, calculate the potential synergy value of IDR 11,097,917 and proceed with the merger. Second, evaluate the strategic merger plan and ensure integration of objectives, growth strategies, and synergies. Third, optimize operational synergy potentials by developing best practices, efficient resource allocation, and improving efficiency. Fourth, establish a robust monitoring and evaluation system to track the merger's implementation and identify improvement opportunities. Further studies and evaluations are necessary before final decisions are made.