Fitch: TeliaSonera Bid Likely to Be Neutral
Debt ratings agency, Fitch Ratings says France Telecom's offer to acquire Sweden-based TeliaSonera is likely to be rating-neutral for FT, based on the current terms of the offer.
Fitch notes that TeliaSonera's Board rejected FT's offer on the grounds that it undervalues the company's potential growth. The agency considers that any changes to the existing terms of the transaction would have to be examined closely and could have negative implications for FT's ratings.
FT announced that an informal offer has been made today to acquire TeliaSonera through a combination of cash (52%) and shares (48%). The proposed deal, if accepted, would raise FT's net leverage to 2.5x from just below 2x at FYE07 which Fitch would consider as acceptable for the rating. In addition, Fitch takes comfort from the management's public commitment to de-leverage to below 2x within three years. The agency favourably views FT management's track record at integrating and strengthening new businesses (e.g. TPSA) and also at reducing debt (ahead of guidance to below 2x at FYE07). These considerations are key to Fitch's assessment of the risks related to the TeliaSonera transaction.
While TeliaSonera may not seem the obvious target for FT, Fitch notes that the former's minority stakes in emerging market assets have a meaningful financial value at today's price multiples even if, under Fitch's methodology, FT's leverage metrics would not benefit from any EBITDA pick-up from these assets.
Fitch notes that consolidation in Europe is an inevitable trend in the telecom space as technology enhances the benefits of economies of scale. In this regard, a FT/TeliaSonera tie-up would increase the group's geographical footprint (e.g. the Baltic region). Furthermore, Fitch accepts the tie-up will produce cost synergies although it is difficult to quantify at this stage.
Posted to the site on 6th June 2008
