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France Telecom Eyes Takeover of TeliaSonera—Reports
16 Apr 08
France Telecom is reported to be weighing up an audacious takeover bid for TeliaSonera.
Global Insight Perspective | | Significance | A bid for TeliaSonera will be France Telecom’s largest since the multi-billion dollar takeover of Orange which nearly bankrupted it. | Implications | If the deal proceeds, nothing much will change as the two companies have little geographical overlap in their operations. However, France Telecom will overtake Deutsche Telekom as Europe’s third-largest telco, behind Vodafone and Telefonica. | Outlook | The fusion of France Telecom and TeliaSonera will edge Europe closer to that long-expected market consolidation. |
France Telecom may be preparing to up the ante in the ensuing consolidation wars in Europe with a speculative merger with Nordic telecoms group, TeliaSonera. Without citing sources, French newspaper, Le Figaro reported today that the French giant is studying a possible takeover of TeliaSonera through a share swap, in a move which could bring the governments of France, Finland, and Sweden to jointly control the resultant company. Continuing further, the paper said that sovereign funds could enter the capital of the combined group and that an announcement could take several weeks. Other media outlets have not corroborated the story yet but Reuters reports that spokespersons for both the French and Swedish governments declined to comment on the news. France Telecom is 27.3% owned by the French government; TeliaSonera is 37.3% owned by the Swedish state, and 13.7% by Finland (see Europe: 30 June 2006: Consolidation in Europe's Telecoms Industry). Outlook and Implications More than Press Speculation: Although there is yet no alternative confirmation of the news, it would not be too far off from what could happen. There is a wave of consolidation brewing across Europe with the former incumbents seen pulling together to survive. Such is the apprehension in the market that the Financial Times predicted in March that only four former incumbent telcos in Europe could survive. Already, the market is edging close to that. Germany’s Deutsche Telekom is in the process of taking a 20% stake in Greece’s OTE. Similarly, it is increasingly becoming a question of when, rather than if, that Spanish giant Telefonica will take over Italy’s Telecom Italia. Indeed, an interest in TeliaSonera will confirm France Telecom as part of that quartet of stalwarts which would include Deutsche Telekom, Telefonica, and Vodafone. A Perfect Fit?: The best thing about a potential link-up between France Telecom and TeliaSonera is that there is little geographical overlap between their operations and as such, European Union (EU) regulators would have little to worry about. Apart from in Moldova and Spain, the two companies do not have operations in the same country. Both companies run mobile units in Moldova and in Spain, TeliaSonera entered the mobile market in late 2006 whereas France Telecom has both mobile and fixed operations in the country via its acquisition of Amena in July 2005. A deal could lead to the fusion of the Moldovan units and in Spain, a merger of Yoigo and Orange would hardly raise eyebrows given that Yoigo is struggling. But, the lack of geographical overlap could well become a problem. A merger in the proportion of France Telecom and TeliaSonera should be justifiable based on the synergies derivable from it and not merely for increasing the size of the company. With little overlap, those synergies do not exist. Instead, the new company will simply have expanded its size, and may be taking on very low-growth markets in Europe. Indeed, a cynical hypothesis could well be that France Telecom is interested in TeliaSonera’s high-growth Eurasian assets but is willing to accept the low-growth Nordic markets as an unavoidable liability. A Confident France Telecom: If this deal pulls through, France Telecom would have sounded a note of information to the market that it is back in vogue. For a company which was nearly bankrupted by previous acquisitions in the Dot Com era, TeliaSonera will represent its biggest and, by far, boldest acquisition expedition since then. Little wonder the company is said to be pushing for a share swap as that would avoid the need for “an already generously-geared” France Telecom to go asking for gigantic funds in the middle of a credit crunch. Meanwhile, a deal would see France Telecom supplant Deutsche Telekom as the third most capitalised European telco, behind Vodafone and Telefonica. Reuters reports that France Telecom is capped at US$91.4 billion with TeliaSonera at US$34 billion; Vodafone is worth US$157 billion, Telefonica US$139 billion. France Telecom has also been busy building its business piecemeal by investing in content services and high-speed networks. It has also expressed interest to up its stake in Poland (see Poland: 28 March 2008: France Telecom Expresses Interest in Increasing Stake in Poland's TPSA).
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