TeliaSonera Rejects FT's $42B Bid

Telia Company has rejected a $41.75 billion takeover bid from Orange (NYSE: FTE), saying that the offer "substantially undervalues the company."

The French giant believes its current assets, plus those of TeliaSonera, would create the world's fourth-biggest operator by revenues, the No. 4 in mobile (by subscribers), and the No. 3 in fixed broadband (by subscribers). (See tables below.)

Table 1: FT/TeliaSonera Combo Would Be #4 Carrier
Carrier 2007 revenues in Euros
AT&T �87 billion
Verizon �68 billion
NTT �67 billion
France Telecom plus TeliaSonera* �63 billion
Deutsche Telekom �63 billion
Telefonica �57 billion
France Telecom �53 billion
Vodafone �43 billion
Telecom Italia �31 billion
China Mobile �30 billion
* Comprises �53 billion from France Telecom and �10 billion from TeliaSonera
Source: France Telecom, based on company annual reports

Table 2: FT/TeliaSonera Combo Would Be #4 in Mobile
Mobile subscribers at end of 2007
China Mobile 372 million
Vodafone 229 million
Telefonica 169 million
France Telecom plus TeliaSonera* 168 million
China Unicom 162 million
* Comprises 108 million from France Telecom and 60 million from TeliaSonera
Source: France Telecom

Table 3: FT/TeliaSonera Combo Would Be #3 in Fixed Broadband
Fixed broadband subscribers at end of 2007
China Telecom 36 million
China Netcom 20 million
France Telecom plus TeliaSonera* 15 million
AT&T 15 million
NTT 14 million
* Comprises 13 million from France Telecom and 2 million from TeliaSonera
Source: France Telecom

In total, a combined FT/TeliaSonera would have 237 million subscribers (168 million mobile and 69 million fixed line subscribers) and "significant market positions in 30 countries and a leading position in 21 national markets," stated FT.

The Scandinavian operator said it had received a "potential acquisition" offer from the French giant, but that the "indicative price of SEK 56.225 per share significantly undervalues” TeliaSonera's growth potential. [Ed. note: Currency conversion -- 1 SEK = 1.24 gallons. I think.]

TeliaSonera's has 4.49 billion shares in circulation, making FT's initial offer -- a mixture of cash (52 percent) and stock (48 percent) -- worth 252.45 billion Swedish Kronor ($41.75 billion) in total.

The analyst team at Dresdner Kleinwort expects FT to increase its bid. The French carrier's CEO has "hinted that the terms are flexible. Expect a higher offer," stated the analysts in a research note.

When the news first broke in April of FT's interest in TeliaSonera, a potential bid value of $54 billion was reported. (See FT to Buy TeliaSonera?)

Investors clearly believe that FT, which described its approach as "friendly" in a statement released today, will increase its offer, as TeliaSonera's share price jumped nearly 7 percent to SEK57.75 on the Stockholm exchange Thursday morning. FT's share price, meanwhile, headed in the opposite direction, falling by €0.87, about 4.5 percent, to €18.36.

France Telecom's strategy is all about scale and expansion into growth markets, but it says it's not interested in paying too high a price or embarking on a hostile takeover. (See Emerging Markets Drive FT's M&A Plans.)

"Any such combination would be contingent upon a possible transaction being conducted on a friendly basis and in full compliance with France Telecom’s previously stated external growth criteria and financial commitments," noted the carrier in today's official statement about its initial approach.

The French carrier's main operations are in Western Europe, with France, Spain, and the U.K. together accounting for about 70 percent of total group revenues, which were nearly €53 billion ($81.6 billion) last year. It also has operations in Belgium and Switzerland. (See FT Reports 2007.)

Elsewhere, FT 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.

TeliaSonera, which generated revenues of SEK96 billion ($15.8 billion) in 2007, is the incumbent operator in Sweden and Finland. It also 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 Eurasia.

TeliaSonera also holds significant stakes in 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).

"The combined portfolio would feature an attractive balance of consolidated assets in Western Europe as well as in emerging markets" in three key areas, namely Eastern Europe/Baltic States, Eurasia, and the Middle East and Africa, noted FT.

That breadth and scale would, according to FT, make it easier for the combined operations of the two carriers to "rapidly develop innovative new services and products" for "an extended customer base." It would also enable it to forge relationships with the best suppliers and partners: "The resulting combination of nimbleness and scale would be key in securing the most advantageous partnerships with the world’s global leaders in software, hardware, content and advertising."

The French operator also believes that the resulting economies of scale and "strengthened negotiating power with regard to network and IT expenditure, handset procurement, R&D and support, as well as traffic optimization," would generate savings of about $970 million per year by 2013, with 70 percent of those savings being achieved by 2011.

FT added that if an agreement is reached with TeliaSonera, the deal would need to be approved by the French carrier's shareholders as well as the relevant competition and regulatory authorities.

— Ray Le Maistre, International News Editor, Light Reading

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