KUALA LUMPUR Celcom said Deutsche Telekom AG cannot veto its proposed merger with the cellular arm of Telekom Malaysia to create the biggest mobile phone company in the country.

Deutsche holds an eight percent stake and state-owned Telekom 31.25 percent in Celcom, which is Malaysia's second top mobile phone operator.

In a statement late Friday, Celcom confirmed reports that the German operator had voted against the sale of TM Cellular to Celcom but said it did not need Deutsche's consent for the deal.

The board Tuesday approved the merger despite Deutsche's opposition when other directors outvoted it in favour of the plan, it said.

Celcom was replying to queries from the stock exc

hange over reports that the merger plan may hit a snag as Deutsche holds special veto rights.

Celcom said it has been advised that Deutsche's special rights may not be forceable because they were not made public and there was no shareholders meeting to approve them.

Under a supplementary pact signed in April between its unit Technology Resourses Industries (TRI) and Deutsche, prior approval must be obtained from Deutsche before Celcom or any of its subsidiairies can merge with firms outside the group.

Issuing new shares

But Celcom said this was not necessary as the proposed merger was by way of acquiring TM Cellular through issuing new shares to Telecom.

"Its legal advisers have advised that the consent of Deutsche Telekom is not required for Celcom to acquire TM Cellular," it added.

If the sale of TM Cellular is signed before October 29, Telekom will have to make a general offer at RM2.75 (0.72 dollar) each for the rest of the shares it did not own as part of the cellular merger plan.

But Deutsche, which bought the shares in 1996 at RM9 each, was believed to be eyeing a higher price than the RM2.75 offer, analysts said.

Sources told AFP's financial news wire AFX-Asia that Celcom was likely to ink an agreement to buy TM Cellular next week and proceed with the merger to become Malaysia's biggest mobile phone company.

New concerns on debt

The source said details of the TM Cellular purchase were being "ironed out" and Celcom was likely to pay via an issue of new shares valued at around RM2.65.

"Even though Celcom shares are being issued at a lower price, Telekom's general offer at RM2.75 still stands," the source said.

Analysts however said the prospect of a general offer raised new concerns over the amount of debt Telekom would have to take on. It has invested RM1.7 billion to buy the Celcom stake and may need to pay another four billion for the rest.

A Celcom-TM Cellular merger would see Celcom's subscriber base surge to more than three million, overtaking top operator Maxis Communications which has RM2.8 million subscribers.

But Maxis last month signed a deal worth up to RM1.6 billion to buy Time dotCom Bhd's cellular unit to boost its subscriber base by some 650,000. AFP