France Telecom Confirms Interest in TeliaSonera
Published on: 17th Apr 2008
Note -- this news article is more than a year old.
PARIS (Dow Jones) France Telecom, Friday said it had taken "exploratory steps" to pursue its interest in Nordic operator TeliaSonera and sought to explain a renewed interest in large scale mergers and acquisitions that has sent its share price plunging.
While TeliaSonera "could present a strategic opportunity" for France Telecom, the French incumbent is not yet in negotiations, Chief Financial Officer Gervais Pellissier told reporters on a conference call.
The comments did little to reassure investors and analysts, who have been alarmed by the company's fresh appetite for buying growth on a large scale.
"I think today's statement and presentation will raise concerns rather than alleviate them," said Mark James, an analyst at Collins Stewart in London.
Analysts at Dresdner Kleinwort, Oddo Securities and Dexia all downgraded their ratings on France Telecom in reaction to the company's presentation Friday.
At 0912 GMT, France Telecom shares were down 2.1%, or EUR0.42, to EUR19.44 compared with a 0.7% rise in France's benchmark CAC-40 index.
Before Friday, France Telecom's share price had sunk 11% in two days after French daily Le Figaro first reported the company's interest in TeliaSonera Wednesday.
"I'm unnerved by the company's quest for scale being pursued in the absence of any shareholder value measures," said James, who has a hold recommendation on the stock.
A firm decision on TeliaSonera is not likely any time soon, as France Telecom's interest is at such a "preliminary stage," Pellissier said. France Telecom is yet to appoint investment banks to advise it on negotiations, he added.
In an effort to justify a possible bid in the tens of millions of euros for TeliaSonera or another operator, CFO Pellissier explained that the telecommunications market is in constant evolution and size is "an essential element."
Part of France Telecom's reasoning is that greater scale would help it to chase new revenue streams such as online advertising and content services where global players such as Google and Apple are reaping most of the added value.
"Taking on Google is not a good idea and we are concerned that France Telecom is even thinking along these lines," said Martin Mabbutt, a London-based analyst at Nomura.
"If France Telecom really believes that this is the way its business needs to develop then there is a never ending stream of M&A to come," said Mabbutt, who has a buy rating on France Telecom stock. "It will never be enough to create the scale it wants."
Pellissier reiterated that France Telecom would respect its medium-term debt and cash return commitments, but said that in the case of a deal for an operator of TeliaSonera's size, the company could temporarily go beyond its debt to earnings before interest, tax, appreciation and amortization, or Editda, ratio of 2.
Pellissier said a possible deal for TeliaSonera could take the form of a cash and equity offer. Le Figaro had suggested the deal may take the form of an all-share offer.
At 0920 GMT, TeliaSonera shares traded up SEK1.55, or 3.1%, at SEK51.25 in an overall higher market in Stockholm.
The Swedish government is selling off its stake in Teliasonera as part of its $33.8 billion privatization drive, but so far has sold off only a small part of its holding. At the end of 2007 it held 37.3% of TeliaSonera's capital.
A takeover of TeliaSonera would give France Telecom access to new markets in Northern and Eastern Europe as well as assets in Russia and Turkey. But analysts have questioned the level of possible cost savings given the two companies' lack of geographical overlap.
TeliaSonera was formed in 2002 with the EUR6.9 billion acquisition of Sonera Corp. by Swedish telecommunications group Telia AB. It was the first combination of two national phone companies in Europe.
By Jethro Mullen, Dow Jones Newswires; 33 1 4017 1738; email@example.com
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