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The potential deal, initially reported by French newspaper Le Figaro and later
by The Wall Street Journal Online, would create a giant with annual sales of 63
billion euros and allow it to compete better with rival Deutsche Telekom AG
(DE:555750: news, chart, profile) (DT:deutsche telekom ag sponsored adr
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2:01pm 04/16/2008
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DT 17.96, +0.28, +1.6%) , which is Europes largest telecommunications company.
The Le Figaro report said a deal could be valued at a minimum 34 billion euros
($54 billion) and would involve complex political negotiations. Thats because
France Telecom (FR:013330: news, chart, profile) (FTE:france telecom sponsored
adr
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FTE 33.25, 1.91, 5.4%) is 27%owned by the French government and the Swedish
and Finnish states have respective 37% and 13.7% stakes in TeliaSonera (SE:TLSN:
news, chart, profile) .
France Telecom has the backing of the French government for the operation and
would use stock to make the purchase, Le Figaro reported, without citing its
sources.
The company declined to comment on the report.
Shares of TeliaSonera rose 10% in Stockholm. France Telecom shares fell 5.9% in
Paris afternoon trading. See Europe Markets.
France Telecom, like many other European incumbent telecom operators, has been
looking to enter fastgrowing markets beyond its borders to offset slower growth
at home. It already has operations in Spain, Poland, the U.K. and several
Eastern European countries. It has recently bought assets in Kenya and Jordan as
part of a strategy to build its presence in Africa and the Middle East.
A purchase of TeliaSonera would be France Telecoms largest acquisition since it
bought Orange in 2000 for 27.8 billion pounds. Although the transaction would
mark a slight departure from the French groups strategy of recent years
Scandinavia is not exactly an emerging market it would bring exposure to a
new geographical area. TeliaSonera also boasts a wider operating margin than
France Telecoms.
Goldman Sachs analysts told clients in a note published Wednesday that sizeable
cost savings are hard to envisage as France Telecom is already a "scale player"
and its only overlapping market with TeliaSonera is Spain where they would face
uncertainty regarding licenses.
It noted, however, that a deal would be positive for the sector, especially for
smaller players with an emergingmarket presence such as Telenor (NO:TEL: news,
chart, profile) , Telekom Austria (TKAGY:telekom austria ag sponsored adr
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8:11pm 04/15/2008
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TKAGY 44.85, +1.44, +3.3%) and potentially Portugal Telecom (PT:Portugal
Telecom, S.A.
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PT 12.90, +0.64, +5.2%) .
All three advanced on Wednesday: shares of Portugal Telecom rose 4.9%, Telenor
rose 3.4% and Telekom Austria added 2%. Citigroup analysts, however, were
doubtful that a deal would materialize. They only attributed the scenario a 20%
probability, saying the tieup would make little sense for either company.
"It would be unlikely to help either player restructure its fixedline units or
solve TeliaSoneras ownership issues in Russia or Turkey," the broker said.
Analysts for Natixis Securities, meanwhile, reminded investors that France
Telecoms track record when it comes to acquisitions is "unimpressive." The
broker said it believes that today the group is looking to trim its asset
portfolio, as evidence by the sale of its Dutch business, than to identify new
targets in Europe.
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Source: http://www.marketwatch.com/news/story/story.aspx?guid=%7B806E0C5D%2D9973%2D4831%2D82FE%2D02173FB2A9E4%7D&siteid=rss
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