Axiata Group struck a non-binding agreement with Indonesian conglomerate Sinar Mas to explore a merger of respective local businesses XL Axiata and Smartfren, confirming reports circulating last month.

In a joint statement, the companies explained the proposed transaction is still at early stages of evaluation, with plans for Axiata and Sinar Mas to become joint controlling shareholders of a new entity, dubbed MergeCo.

The non-binding Memorandum of Understanding (MoU) will explore a potential business plan, merger rationale, value creation to shareholders, due diligence and agreement on key terms.

Financial value of a potential deal was not disclosed, though it could reportedly be worth around $3.5 billion.

Axiata and Sinar Mas added the mooted deal is intended to establish a stronger telecoms service provider in Indonesia and is expected to bring together the pair’s competencies, market knowledge and telecoms expertise to “generate significant value”.

If the creation of MergeCo comes to fruition, the new entity will have a combined subscriber base of close to 100 million customers.

Sinar Mas runs one of Indonesia’s largest business empires, with operations in mining, pulp and paper and real estate, among others.