OSLO A TeliaSonera (TLSN.ST) executive fanned speculation of a bid from Norway's Telenor (TEL.OL) on Tuesday, even though analysts frowned on the idea of a Nordic telecoms merger.
TeliaSonera board member and union leader Elof Isaksson told Norwegian daily Dagens Naeringsliv "we know Telenor is interested" in TeliaSonera, which last week rejected a $41 billion bid from France Telecom FTE.PA as too low.
Analysts see little financial logic behind a Telenor takeover of TeliaSonera since they share the same Nordic markets, though some say a partial tie-up could make sense and noted regional politics could also favor a deal.
France Telecom FTE.PA stock, pressured by the huge financing needs required for a TeliaSonera bid, rebounded amid prospects it will be forced to retract its interest and were up 1.4 percent at 18.15 euros by 1311 GMT.
Telenor, which fell on Monday to its lowest in more than a month, bounced 1.9 percent to 105 Norwegian crowns, and TeliaSonera was flat at 56.50 Swedish crowns. The DJ Stoxx European telecom index .SXKP was up 0.1 percent.
"Telenor is unlikely to bid for all of TeliaSonera because the degree of overlap is just too big," said Fondsfinans analyst Arild Nysaether. "It would also dilute Telenor's growth rates and its emerging market profile.
"The only thing I could envisage is Telenor (bidding) as part of a group. Then it could take some of the assets which best suit it, such as TeliaSonera's units in Russia and Turkey."
Rumors that Telenor, worth about $35 billion, may bid for TeliaSonera have long simmered in the deal-happy telecoms industry and Telenor has reportedly hired Nordea (NDA.ST) to advise it.
Telenor's chief executive and Norway's industry minister, responsible for overseeing the state's stake in the company, both declined to comment on the issue on Tuesday.
OVERLAP VS "EMPIRE BUILDING"
Analysts said a Telenor-TeliaSonera link-up would trigger calls by competition authorities to sell their overlapping fixed-line and mobile operations in Denmark, Sweden and Norway. And such a selloff could eat into the deal's benefits.
"Regulators will never allow this to happen," said one Nordic telecoms analyst.
Yet the chairman of the industry committee in the Norwegian parliament, Ola Borten Moe, told Reuters on Monday the two would be a good industrial pairing. He made clear that it was up to Telenor to evaluate its options and initiate any talks.
Analysts said such comments showed Norway would probably not actively push for Telenor to take over TeliaSonera but would not mind if it happened, even if it meant that the government would need to take part in a capital increase to fund it.
Cozy Nordic politics could help a deal between majority state-owned Telenor and TeliaSonera, which is half owned by the governments of Sweden and Finland, though efforts failed to merge the companies in the late 1990s.
"The core scenario is a little clouded -- we have to figure out what is going on in the minds of many people, knowing it is not necessarily based on financials," said Poul Jessen, analyst at Danske Bank. "Managements want to be among the superpowers in the industry and empire building is very hard to forecast."
Telenor and the telecoms industry may also be an opportunity for Norway, known mainly as an oil and gas exporter, to catch up with its tech-savvy Nordic neighbors.
"If Telenor could sink its claws into TeliaSonera ... it would inject good feelings deep into the Norwegian soul," Magne Leroe, editor of Norwegian business weekly Ledelse said.
"But it is far from certain that consumers and Telenor's owners would be well served by this," Leroe added.