France Telecom abandons merger

Tag: telecommunication equipment

France Telecom said it was abandoning its highly unpopular 244 billion kronor ($41.8 billion) offer for the Swedish telecom company after its target rejected the bid on the grounds that it was too low.

Experts in the field seem agreed that the France Telecom has made the right decision.

France Telecom launched an informal cash-and-equity bid on June 5. It claimed that the deal would generate around 700 million euros ($1.1 billion) in synergies over the next five years and create one of the world's largest telecom companies. France Telecom's overture to TeliaSonera had raised eyebrows, not just because of the valuation of the Swedish telecom but because of concerns about whether the combination would really result in anything meaningful in terms of strategy. (See "France Telecom Wants A Talk")

The market, for its part, wasn't convinced, particularly as the acquisition would have given the French company a foothold in none of the markets in which it has so far expressed an interest, notably Africa and Southeast Asia.

France Telecom has made acquisitions and stake purchases in emerging markets like Madagascar and Kenya, and also wants to invest in Vietnamese companies. So the purchase of the Scandinavian TeliaSonera seemed a little off strategy.

"It was quite a surprise when they announced the deal. It didn't fit with France Telecom's usual mergers and acquisitions deals, in our view," said WestLB analyst Stefan Borscheid.

According to Nomura analyst Martin Mabbutt there are no overlapping businesses apart from in Spain, and the synergy of merging things such as research and development would have come from practically any other telecom asset.

TeliaSonera does have a presence in emerging markets like the Baltic states, Azerbaijan and Uzbekistan, but analyst Rob Goyens of Dexia said these markets were more mature and didn’t have the opportunities of other emerging markets that France Telecom has been after.

In addition, while TeliaSonera does have a presence in Russia through MegaFon, and in Turkey through Turkcell, both investments are minority stakes, and alongside majority shareholders who are not prepared to give up much control, said Goyens.

"At the end it comes down to price, and we had concerns that for the price being paid the potential synergies simply weren't large enough," said Borscheid.

Still analysts think the latest announcement was encouraging, in that it shows that France Telecom has strict criteria when it comes to deciding what to buy. "Investors will be encouraged by fact that France Telecom has not been sucked into spending a large amount on a company and that there is a disciplined approach to M&A in terms of transaction value," said Nomura's Mabbutt.