So, it is official. France Telecom has made a ‘friendly’ USD46.4 billion bid for TeliaSonera, following weeks of speculation. TeliaSonera has rejected France Telecom’s initial valuation, but I’m sure that this isn’t the end of this issue. So what is behind France Telecom’s interest in TeliaSonera, and why now?
From an expansionist perspective, the acquisition would increase France Telecom’s footprint in Western Europe and bring another set of developing markets into the already expansive France Telecom estate. TeliaSonera has operations in Estonia, Latvia, Lithuania, and is involved in a series of brands moving further east, as well as its Nordic operations. An acquisition would increase the bias towards mobile operations and be another step in consolidating the extended European mobile market. France Telecom would bring experience from the carrier and enterprise sectors to such a deal.
What risks are involved? The most prominent will be whether the target markets live up to expectation and whether the creation of an even more complex multinational operation for France Telecom results in a management challenge and distraction from its existing core businesses.
From an investment point of view, the real questions are: would it be worth the money and would it increase shareholder value for France Telecom’s shareholders? In general, experience in telecoms M&A has not been good in this respect; several acquisitions have failed to deliver the expected level of synergistic benefits and returns. The complexity of the new combined operation would raise concerns about France Telecom’s ability to realise the benefits of this deal. It could also be a time-consuming management distraction and take France Telecom’s focus away from its existing operations. These risks would have to be reflected in the price. There is also the question of the stakes that the Swedish and Finnish governments still have in TeliaSonera (37.3% and 13.7% respectively). There is no guarantee that they will sell up readily.
The general market reaction to France Telecom’s interest in TeliaSonera has been lukewarm. It is questionable whether France Telecom should pursue the deal with TeliaSonera. The operator may have greater success if it concentrates on optimising the assets it already has – both in France Telecom and Orange. It also seems unwise to contemplate an acquisition of this size at a time when the financial climate makes it more difficult to leverage debt. Perhaps the way forward for France Telecom is to focus on more selective portfolio acquisitions rather than attempting to swallow another large operation that could be difficult to manage.
