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France Telecom withdraws TeliaSonera offer

France Telecom withdrew its $40 billion offer for Nordic telecoms group TeliaSonera, saying it could not reach an agreement on the financing of the deal.

The announcement, coming after press and market speculation that a deal could be imminent, caused France Telecom shares to surge while TeliaSonera shares slumped.

“Following its proposal for a friendly combination with TeliaSonera announced on 5 June, France Telecom has today decided not to submit a firm offer to TeliaSonera's shareholders,” the French group said in a statement.

“Notwithstanding the interest shown in the project, the dialogue opened with the board of directors of TeliaSonera was unable to reach agreement on its financial conditions,” it added.

The company also said TeliaSonera, which is the Nordic region's biggest telecoms operator, was “not essential to the pursuit of its strategy.”

France Telecom did not say how much it had offered in a raised bid but a source close to the company said it was consistent with the ceiling on debt published by France Telecom - something that still proved unacceptable to the TeliaSonera board.

France Telecom shares were up 7% at €18.63 in early morning trade, having at one point risen by as much as 8.9% to €19. The stock had fallen by around 20% since French paper Le Figaro first reported its interest in TeliaSonera in April.

“In the short term, it's positive for France Telecom. It will boost their treasury and it should allow them to refocus on their strategy of making acquisitions in emerging markets,” said Frederic Hamm, a fund manager at Agilis Gestion. Agilis holds France Telecom shares.

TeliaSonera shares were down 12% at 43.80 crowns.

France Telecom had made an indicative cash-and-share offer worth roughly $40 billion.

On June 5, it unveiled an offer whereby shareholders would receive three new France Telecom shares for each 11 shares in TeliaSonera and would be guaranteed a cash option of 63 crowns per share for the first 500 shares.

The cash portion made up 52% of the offer and the shares accounted for 48%.

However, TeliaSonera said on Monday that France Telecom had not significantly improved its terms.

TeliaSonera Chairman Tom von Weymarn said in a statement that TeliaSonera had “excellent growth prospects” on its own right, and that its directors were focused on the further growth of the company.

“The board and management are focused on developing the company to its full potential, driving strong and sustainable earnings growth and maximizing value for all shareholders,” said von Weymarn.

Along with the opposition of TeliaSonera's directors, France Telecom had faced political obstacles from the governments of Sweden and Finland, who both have major stakes in TeliaSonera. Sweden had rejected France Telecom's offer.

Analysts have said that France Telecom may come under pressure to clarify its acquisition policy if the TeliaSonera deal fell through and could face calls to return cash to shareholders. (Reuters)