FRANCE Telecom SA, Europe's third-biggest telephone operator, scrapped its 244-billion-kronor (US$40.8-billion) offer for TeliaSonera AB after the Swedish company rejected the bid.
France Telecom, down 21 percent since Le Figaro reported in April that the company was interested in buying TeliaSonera, rebounded as much as 8.9 percent in Paris trading after saying it was "unable to reach agreement" with the Stockholm-based company on price. TeliaSonera, Sweden's largest phone operator, fell as much as 14 percent.
A deal would have created Europe's largest phone company, increasing customers by 39 percent to 237 million and saving almost 700 million euros (US$1.1 billion) a year by 2013, France Telecom said.
Citigroup Inc analysts Terence Sinclair and Michael Williams labeled the June 5 offer "a poor deal for both parties" because it would hurt earnings at the combined company, without providing enough of a boost in emerging markets.
"The fact that they're not going ahead is a good thing," said Rob Goyens, an analyst at Dexia Securities in Brussels. "The story behind TeliaSonera wasn't totally clear. The synergies weren't very extensive." He has a "buy" rating on France Telecom.
France Telecom Chief Financial Officer Gervais Pellissier said on June 19 that room to raise the cash portion of the offer was "very limited" and the company was ready to walk away from a possible deal.
"We've passed the message to our shareholders that we're watching out for their interests," Pellissier said yesterday. "We're a little disappointed because we believed in the industrial project."
France Telecom rose 1.08 euros, or 6.2 percent, to 18.53 euros as of 11:10am in Paris yesterday. TeliaSonera fell 6.6 kronor, or 13 percent, to 43.2 kronor.
"The question is what the next step is for France Telecom," Goyens said. "You can assume they'll continue to be on the takeover path. That's not necessarily a negative thing, as long as they are better candidates than TeliaSonera."
Pellissier said France Telecom is still considering stakes in government-owned telephone companies in Vietnam and Algeria. Any decision on those will "probably" be in 2009 rather than before the end of this year, he told Bloomberg News.
"We don't have a second big project to announce," Pellissier said. "We always have things we continue to work on in emerging markets. We'll continue to see what small deals we can do in mature markets."
France Telecom had offered to pay for 52 percent of TeliaSonera with cash, and 48 percent in stock. It offered three new France Telecom shares for 11 TeliaSonera shares, with a cash guarantee option for the first 500 shares.
TeliaSonera and the Swedish government, which owns 37.3 percent, rejected the bid within hours and said they were open to higher offers.