(Bloomberg) -- Wireless carrier Axiata Group Bhd. and conglomerate PT Sinar Mas Group are moving forward with plans to merge their telecommunications operations in Indonesia, people familiar with the matter said.

The owners of PT XL Axiata and PT Smartfren Telecom are discussing the structure of a potential transaction that would create a $3.5 billion entity with about 100 million customers, the people said. A deal could involve a mix of cash and shares, they said, asking not to be named as the process is private.

A non-binding agreement may be reached in the coming months, allowing the companies to continue negotiations and carry out due diligence, the people said. Talks are ongoing and there’s no guarantee that Kuala Lumpur-based Axiata and Sinar Mas will proceed with a merger of the units, the people said.

A representative from XL Axiata said consolidation would benefit the industry and that the company is open to exploring possibilities, without commenting directly on a possible Smartfren merger beyond saying it was a decision for shareholders. Smartfren’s president director and Sinar Mas representative, Merza Fachys, said he had no official information to share.  

XL Axiata’s shares have climbed 22% in Jakarta this year, valuing the company at about $2 billion. They jumped as much as 3.8% to the highest since March 21 following the Bloomberg News report Thursday, then pared the gains. Smartfren, which has remained mostly flat this year, has a market value of $1.2 billion.

Axiata and Jakarta-based Sinar Mas revived the merger talks last year, Bloomberg News reported in September. Other options under consideration include network-sharing agreements and partnerships, people familiar with the matter have said. Previous discussions between Malaysia’s biggest wireless carrier and the Indonesian conglomerate didn’t result in a deal.  

Indonesia’s telecom market has been consolidating in recent years. In 2022, CK Hutchison Holdings Ltd. and Qatar’s Ooredoo combined their telecom businesses in the country in a $6 billion transaction as they sought to fend off competition.

(Updates share price move in fifth paragraph.)

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