| Home |
| About Us |
| Latest News |
| Features |
| R-100 Index |
| Newsdesk |
| Free Email Alerts |
| - - - - - - - |
| Wireless Business Review |
| - - - - - - - |
| Francophoney? |
|
|
| Thursday, 10 July 2008 | |
|
Was France Telecom serious when it offered US$40bn for TeliaSonera? Or was it just making a show of non-existent fiscal muscle? And what happens next?
File this under ‘Aborted Takeovers: 2008’. And, for that matter, place it near the top of that file – for easy future reference to the lessons that the episode holds for the industry as a whole. At the beginning of June, it emerged that France Telecom was attempting to negotiate a takeover of TeliaSonera worth in the region of €28bn in cash and shares. Before the month was out, the deal was dead. In between times, the corporate fencing between the French giant and the Nordic powerhouse taught us much of what we need to know about M&A in the current economic climate. Stock and trade The global economic squeeze has been with us, and gradually tightening its grip, for nearly a year now. Telecom equities have slumped broadly in line with the decline of stock markets worldwide despite arguments that telcos are less susceptible to an economic downturn than other industry sectors. These depressed trading conditions can be conducive to corporate aggression and acquisition, nonetheless. Takeover targets become cheaper even as their underlying business potential remains undiminished. This will surely have been a factor in France Telecom’s takeover calculations. There’s a flipside, of course, which is equally relevant in this case. FT’s own shares have trended southwards over the last year, falling further on news of the bid for TeliaSonera. This directly impacted the value of the share component in the French bid and caused the offer price to shrink. At this point, the fabled ‘credit crunch’ comes into play. FT could (and did) attempt to ‘top up’ the value of its bid by increasing the cash component of its bid. Yet with the company already carrying nearly €40bn in debt from its past excesses on the M&A front, opening new lines of credit would be an expensive business. The overall scarcity of such funds at present might even make it an impossible one. These macro considerations have all been reflected in the share prices of the two companies over recent weeks. TS stock jumped by up to 10% on the news of the bid; FT’s fell by a similar amount. The tables were turned when the French walked away: FT climbed 8% while TS dipped below pre-bid levels. Among Nordic investors, this reflected a degree of disappointment at the deal’s collapse and the failure of alternative bidders to come out of the woodwork. On the French side, it appears to stem from relief that the company would not be breaching its own debt management and acquisition strategies. Stocks and statists It’s a mistake to view the FT-TS saga purely through the eyes of shareholders, however. Within the companies on either side of this equation, government involvement has never been far from the surface. The French government is a serial offender in this respect. Yet there is evidence in this instance that the French authorities did little more than give a no of assent to the plan, rather than blocking it or actively encouraging it. The state’s minority stake in FT still gives it a voice in the company’s boardroom, but it no longer seems to shout the odds as it used to do. Where state intervention in France has traditionally been heavy handed, the governments of Sweden and Finland have a reputation for taking a more light-handed approach. Yet the protracted merger of Telia and Sonera, completed in 2002, left Stockholm and Helsinki with 37% and 13% stakes respectively in the combined company. Thus when France Telecom came a-calling, it was forced to deal primarily with state stakeholders rather than a more conventional mix of institutional and private shareholders under the guidance of the company’s board. The government interests controlling TeliaSonera were thus put on the spot. Few governments have won public acclaim for selling out state assets to foreign buyers at what are deemed to be cut-price levels. That’s a run-of-the-mill politically sensitive issue. But popular support for a takeover, as evidenced by the climb in TeliaSonera’s share price, suggested an absence of market aversion to a foreign takeover. Xenophobia is one thing; getting out of the stock with a nice profit would be quite another. Since the deal collapsed early last week, the Nordic authorities have been faced with an undercurrent of recrimination over its failure to negotiate a price at which a sale to the French could be concluded. This is reminiscent of the angry response of certain Yahoo! shareholders recently when mighty Microsoft took its takeover offer off the table. As in that case, the events of June may prove to have merely marked the end of the beginning, rather than an end in itself. Is there a Plan B? Well... what exactly was Plan A? Without question FT’s approach for TeliaSonera, and the willingness of the latter’s key shareholders to entertain the idea of a sale, has put the Nordic operator ‘in play’. Even in today’s unhelpful economic climate, there are bound to be other predators running the rule over the company as we speak. Trying to glean any takeover logic from France Telecom’s failed bid is made more difficult by the fact that it was in large part a publicity stunt. As an attempt to demonstrate a sense of fiscal muscularity in the macho world of telecom, this tactic ultimately backfired: FT was left looking a tad impotent. Leaving that aside, it’s not hard to see what first attracted France Telecom’s interest and why others may be tempted to follow. The telecom markets of Sweden and Finland have been at the forefront of efficiency for decades. The former state monopoly telcos were the prime engines and beneficiaries of this, thanks in part to harnessing the locally-developed technologies of Ericsson, Nokia and others. It’s a moot point as to whether this Nordic ‘success story’ can be easily exported to other markets. Globalisation and competition have skewed the playing field, while many of the conditions found in the Nordic region are unique to the region and cannot be replicated elsewhere. No queue for IQ Even so, TeliaSonera has exploited opportunities in emerging markets – especially in Eastern Europe since the 1990s – with more durable success than most others can lay claim to. It also continues to have a strong revenue base in its home markets. This is the concoction of commercial activity that attracts febrile predators to the frozen north. Chuck all the usual suspects into a hat – even those such as BT or Vodafone or AT&T that have watched as earlier attempts at Nordic domination have come to nought, along with the new breed of hotheads from China, for instance – and one may emerge. History tells us that state-yoked Telenor of Norway may be looking for a chance to enter the fray, too. Deutsche Telekom may fancy a go. And, of course, the French often believe that a slap in the face is no more than a ‘come on’. A Swedish government pledge to disburse its TS stake by 2010 is looming large and a national election pending in 2009 is forcing the pace. Not much more than €30bn, allied to some sweet talk and a well-attuned sense of political timing, would clinch the deal. Jim Chalmers |
| Next > |
|---|
|
|
|
|
|
|
|
|
|
|