France Telecom looking to acquire TeliaSonera in $38 billion deal

21 April 2008

Mumbai: France Telecom SA evinced interest in acquiring Nordic telecommunications firm TeliaSonera AB last week, but concerns over the price tag have sent its share price plummeting in recent days, prompting the French major's chief financial officer to issue clarifications to panicky investors.

A France Telecom purchase of TeliaSonera would also involve complex political negotiations as France Telecom is 27 per cent-owned by the French government while the Swedish and Finnish governments have 37 per cent and 13.7 per cent stakes in TeliaSonera respectively. Sweden's minister for financial markets, Mats Odell, said it is 'promising' France Telecom has shown interest in TeliaSonera.

A potential tie-up would create a telecom giant with annual sales of 63 billion euros ($100 billion) and an established presence in France, Spain and the UK, as well as in Nordic and Baltic states. It would also allow France Telecom to better compete with Deutsche Telekom AG, Europe's largest telecom company by revenue.

Buying TeliaSonera would be France Telecom's biggest deal since it bought Orange for £27.8bn ($55.1bn) in 2000. The firm has stressed that negotiations had not yet started, but said the two companies were complementary, with CFO Gervais Pellissier saying only "exploratory steps" have been taken.

News of France Telecom's interest in TeliaSonera first broke on Wednesday last week, and the three trading days saw a collective fall of 12 per cent in the share price, when investors panicked at the high price and the implications of an all-stock deal. TeliaSonera has a market value of roughly $38 billion.

Since then, Pellissier has tried to clarify matters by saying that any deal of this size would be paid with a combination of cash and shares. Additionally, he stressed that France Telecom wouldn't allow its ratio of debt to earnings before interest, tax, appreciation and amortization to go beyond 2.5 and would aim to bring it back to 2 within three years in case of a deal. The company also pledged to continue to increase its dividend but added that it was possible it might not meet its key debt target this year if it secured a deal.