France Telecom ()
withdrew a $40 billion offer for TeliaSonera () on
Monday, sending the Nordic telecom operator's shares sharply
lower but offering relief to investors in the French firm.
This tie-up always faced long odds: the French suitor was
restricted by its financial targets while analysts say Sweden,
a big TeliaSonera shareholder, was wary of selling at too low a
price for political reasons.
TeliaSonera shares dropped 13 percent to 43.30 Swedish
crowns, while France Telecom shares jumped 7.3 percent.
"By pulling out, France Telecom has show that it is not in
the business of getting big at all costs," said Vincent
Griffon, analyst at CM-CIC Securities. "This announcement
should reassure investors."
France Telecom's indicative cash-and-shares bid, unveiled
on June 5, had failed to win over TeliaSonera's board or
Sweden, which said it was too low. The two companies held talks
but TeliaSonera said the terms did not improve significantly
and the offer undervalued it.
France Telecom said the deal-breaker was money.
"Notwithstanding the interest shown in the project, the
dialogue opened with the board of directors of TeliaSonera was
unable to reach agreement on its financial conditions," France
Telecom said in a statement.
It argued a purchase of TeliaSonera was "not essential to
the pursuit of its strategy."
QUESTION MARKS
The pullout leaves question marks over TeliaSonera's
future. Sweden wants to sell its 37.3 percent stake as part of
its biggest-ever privatization push but it has shown that it
will not sell at any price.
TeliaSonera Chairman Tom von Weymarn said in a statement
the firm had "excellent growth prospects" in its own right.
Robert Jakobsen, analyst at Jyske Bank, said the failure of
talks was unsurprising since TeliaSonera's management had been
clear that the original price was too low.
"Also, France Telecom has been saying that they were not
willing to go much further, so it's not a major surprise."
Sweden's initial public offering in 2000 of Telia -- which
later merged with Finland's Sonera -- ended up losing thousands
of Swedish investors money after the shares tumbled during the
bursting of the dot-com bubble.
Sweden, analysts say, needed a price that at least matched
the IPO terms -- a level closer to 65 Swedish crowns rather
than the 54 to 55 area that the French offer represented.
However, France Telecom has a target ratio for debt to core
earnings (EBITDA) of 2.0 and the company had already indicated
a deal could push that ratio to 2.5 this year. France Telecom
had $60.6 billion in debt at end-2007, TeliaSonera $5.9
billion.
While France Telecom said a merger would have created the
world number three in broadband and world number four in
mobile, the market saw limited scope for cost savings.
Debt investors welcomed the news. Five-year credit default
swaps for France Telecom narrowed 10 basis points to 103,
meaning the cost of insuring 10 million euros of the French
firm's debt has fallen 10,000 euros ($15,790) to 103,000.
FOCUS
France Telecom has not revealed the final terms it offered
TeliaSonera, but a source close to the company said it was
consistent with the debt ceiling the firm has published.
Swedish government officials were not immediately available
for comment. Finland, which owns 13 percent of TeliaSonera,
said it agreed with the TeliaSonera board's statement.
The cash portion made up 52 percent of the offer. France
Telecom, according to media reports, had been willing to
increase the cash portion of the bid.
Analysts have said France Telecom may come under pressure
to clarify its acquisition policy and could face calls to
return cash to shareholders.
Poul Jessen, analyst at Dankse Bank, said France Telecom
had faced the choice either to be acquisitive, as Deutsche
Telekom () and Vodafone (VOD.L) have been, or focus on
results.
"They apparently decided to keep focus on the financial
returns," Jessen said.
Jessen said any firm that wants to acquire TeliaSonera will
need to reach a solution to disputes over associate companies
in Russia and Turkey, which could take a long time. "Therefore
I don't expect anyone else to come in," he said.
(Additional reporting by Tim Hepher; Sven Nordenstam and
Adam Cox; Editing by Paul Bolding)
Related posts: