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France Telecom $41 bln bids for TeliaSonera - extended

Talks are under way to create the world’s fourth-largest mobile operator after Nordic group TeliaSonera rejected a preliminary offer of $41 billion from France Telecom.

France Telecom fired the first real salvo in its campaign for the Nordic telecoms leader on Thursday, following weeks of speculation over its interest in TeliaSonera and days after Reuters reported it was negotiating to raise a loan for a bid. The French group said it aimed for a “friendly” deal but would not change the indicative cash-and-shares offer, setting itself on a collision course with TeliaSonera as it began talks on what would be one of Europe’s biggest mergers this year. “On the parity, (changing) it is out of the question,” Chief Executive Didier Lombard told a conference call on Thursday. “There are many non-monetary parameters that could be adjusted ... This is just the beginning of discussions.”

France Telecom and TeliaSonera have given themselves two weeks to discuss terms. “If we cannot reach a friendly agreement, we will not be successful,” Lombard added. TeliaSonera Chairman Tom von Weymarn told Reuters the offer was “significantly” below the group’s real value.

The Swedish government is keen to sell its 37.3% stake in TeliaSonera as part of a privatization program, but Swedish Financial Markets Minister Mats Odell supported the company’s rejection of the bid as too low. France Telecom, which was privatized in the early 1990s, is still 26.69% owned by the French government. It said TeliaSonera’s presence in Turkey and Russia would allow it expand in emerging markets and strengthen its hand when negotiating with Internet giants, such as Google and Yahoo. France Telecom, which mainly trades under the Orange brand, said the combination would also turn it into the world’s third largest broadband provider through DSL phone lines. It said the deal would boost earnings from 2009 onwards.

 
SHARES DOWN

But investors, who warned the acquisition carried execution risks and did not appear to create much value, sent France Telecom shares down to a 19-month low of €18.20. And analysts quickly weighed up the possibility of other firms joining the fray. The two top possibilities are thought to be Telenor and Germany’s Deutsche Telekom, analysts said. “I think the current bid price is low, so I wouldn’t rule out other bidders,” said Lena Osterberg, analyst at SEB Enskilda. Deutsche Telekom has been looking to expand in countries it is not active in. But it said last month that “internationalization” was not “an end in itself” and that it would buy something if the opportunity was right.

France Telecom stock ended down 5.1% at €18.25, while shares in TeliaSonera ended up 6.5% at 57.25 Swedish krona, above the bid value of around 55 krona. Under the indicative offer, shareholders would receive three new France Telecom shares for each 11 shares in TeliaSonera and would be guaranteed a cash option of 63 krona per share for the first 500 shares. The cash portion makes up 52% of the offer and the shares account for 48%. France Telecom said the deal was partly driven by the current wave of consolidation rippling through the global telecoms market. “In the current context of consolidation, it appears unavoidable to have critical mass,” Lombard said.

Deutsche Telekom last month acquired a 25% stake in Greek operator OTE, while US-based Verizon Wireless announced earlier in the day it would buy US rural mobile service provider Alltel Corp for $28.1 billion including debt. Meanwhile, India’s Reliance Communications Ltd. and South Africa’s MTN are also close to a tie-up.

TeliaSonera shareholder Folksam, which owned a 1.2% stake at the end of April, said France Telecom’s bid was very low and was unlikely to succeed. “It is not a bid that one is jumping over with joy from a financial perspective,” Carina Lungberg Markow, a spokeswoman for insurance company Folksam said. “It seems very low.”

The offer is equivalent to an enterprise value of 8.5 times expected 2009 core earnings for TeliaSonera, above a median of 5.7 in the DJ Stoxx telecoms index, Reuters data shows. The French group said the deal would not lead to any job cuts but would generate synergy benefits equal to 1% of combined turnover, which brokerage Natixis estimated in a note to be worth around €660 million and €670 million. (Reuters)