France Telecom and TeliaSonera

France Telecom mulls $54 billion TeliaSonera deal

Le Figaro reports France Telecom has approval of French government

France Telecom is considering an all-stock bid for TeliaSonera, Sweden's largest telecommunications company, according to media reports Wednesday.

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, which is Europe's 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. That's because France Telecom) 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 9.8% in Stockholm. France Telecom shares fell 5.9% in Paris afternoon trading.

France Telecom, like many other European incumbent telecom operators, has been looking to enter fast-growing 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 Telecom's largest acquisition since it bought Orange in 2000 for 27.8 billion pounds. Although the transaction would mark a slight departure from the French group's 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 Telecom's.

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 emerging-market presence such as Telenor, Telekom Austria ) and potentially Portugal Telecom.