Emerging Markets Drive FT's M&A Plans

France Telecom SA (NYSE: FTE) has confirmed that it is checking out the potential of buying or merging with a number of carriers, including TeliaSonera AB (Nasdaq: TLSN), as it chases more assets in emerging markets and expertise in mobile Internet services.

News emerged Wednesday that FT was checking out TeliaSonera, the incumbent operator in Sweden and Finland, and the French incumbent confirmed that interest today, according to the Financial Times. France Telecom CFO Gervais Pellisier told the paper that emerging market expansion and mobile Internet expertise were behind his firm's interest in TeliaSonera, but that the French incumbent is still in the early stages of examining its M&A opportunities and had not yet initiated any conversations. (See FT to Buy TeliaSonera?)

A France Telecom spokesman told Light Reading that TeliaSonera is of specific interest, as are a number of different operators, as part of the French incumbent's M&A strategy to "reinforce our footprint in emerging markets, strengthen our presence in Western Europe, and acquire competencies in certain key areas."

FT has already been adding to its international assets recently and, of course, isn't the only operator looking to the emerging markets for new growth opportunities. (See FT Adds to African Assets, Telecom Italia Eyes Emerging Markets, A Guide to India's Telecom Operators, and Who Does What: Middle East Carriers.)

But while the Financial Times cited another Scandinavian operator, Telenor ASA (Nasdaq: TELN), in its report, our France Telecom spokesman said the Norwegian carrier was just another example of a company FT might look at, rather than an operator that is specifically under M&A observation.

In a research note issued this morning, the analyst team at Dresdner Kleinwort stated it was "unconvinced of the industrial logic" of a takeover bid for TeliaSonera, and investors seem to agree -- confirmation that FT is considering M&A moves to bulk up sent its share price down by €1.02, 4.7 percent, to €19.88 (US$31.65 and climbing) on the Paris exchange.

TeliaSonera, meanwhile, saw its stock gain 12 percent Wednesday, but it eased back slightly Thursday, by 0.8 percent, to 49.60 Swedish Kroner ($8.39). Telenor's share price jumped by 6 percent in early trading on the Oslo exchange Thursday, but by mid-afternoon it was back to Wednesday's closing price of 100 Norwegian kroner ($20.12).

TeliaSonera currently has a market value of nearly $38 billion, while Telenor's capitalization is $35 billion (at today's exchange rates).

Emerging market potential
So what does TeliaSonera, or Telenor, have that France Telecom might want?

France Telecom generated revenues of nearly €53 billion ($84.3 billion) in 2007, and ended last year with about 170 million customers (including 110 million mobile customers), and nearly 184,000 employees. (See FT Reports 2007.)

FT's main operations currently are in Western Europe, with France, Spain, and the U.K. together accounting for about 70 percent of total group revenues. It also has operations in Belgium and Switzerland.

Elsewhere, it is active in Eastern Europe (Poland, Russia, Romania, Slovakia, Moldova), Africa (13 markets), the Middle East (Jordan, Bahrain), and Asia/Pacific (China, Korea, Vietnam, Japan), with a small amount of business coming from North and Central America.

So the French giant already has a presence in regions that are showing growth, but it clearly wants more. And both TeliaSonera and Telenor have built up significant overseas operations, especially in mobile markets. (See Eastern Promise.)

TeliaSonera generated revenues of 96 billion Swedish kroner ($16.2 billion) in 2007 and finished the year with 36.1 million customers, plus nearly 79 million in "associated companies" (operators in which it holds a minority stake). It had more than 31,000 staff at the end of last year.

In addition to Sweden and Finland, TeliaSonera has operations in: Norway, Denmark, and Spain in Western Europe; Estonia, Latvia, and Lithuania in Eastern Europe; and Kazakhstan, Azerbaijan, Uzbekistan, Tajikistan, Georgia, and Moldova in the region TeliaSonera calls Eurasia.

Its "associated companies" include Russian mobile operator MegaFon (a 43.8 percent stake) and Turkish mobile operator Turkcell Iletisim Hizmetleri A.S. (NYSE: TKC) (a 37.3 percent stake).

Telenor generated revenues of 92.5 billion Norwegian kroner ($18.6 billion) in 2007 and finished last year with 143 million mobile customers, more than 3 million fixed line customers, and nearly 36,000 staff.

It has fixed line and mobile operations in Norway, Sweden, and Denmark, and additional mobile operations in Eastern Europe (Serbia, Russia, Montenegro, Ukraine, and Hungary), and Asia/Pacific (Bangladesh, Malaysia, Pakistan, and Thailand).

— Ray Le Maistre, International News Editor, Light Reading