UPDATE 3-France Telecom in touch with Telia, may raise bid

(Adds analyst comments, closing shares)

By Tim Hepher

PARIS, June 19 (Reuters) - France Telecom SA (FTE.PA) said on Thursday it had opened talks about entering formal takeovernegotiations with TeliaSonera AB (TLSN.ST) and could sweeten its indicative $41 billion bid for the Swedish-Finnish group.

The talks about talks were disclosed by Finance Director Gervais Pellissier during a meeting of investors in Lisbon and confirmed by a company spokesman.

Pellissier told investors France Telecom may be willing to increase the cash portion of its offer, but insisted the margin for doing so is "extremely limited," the spokesman said.

TeliaSonera declined comment.

France Telecom shares had fallen 1.1 percent to 17.95 euros, by 1414 GMT, while the DJ Stoxx telecoms index .SXKP was down 1.0 percent. TeliaSonera shares fell 4.9 percent.

Norwegian telecoms group Telenor ASA (TEL.OL) -- also rumoured to be interested in TeliaSonera -- said it was actively evaluating mergers and acquisitions, but did not indicate a specific interest. [ID:nL19312847]

Pellissier's comments came after sources familiar with the matter said on Wednesday that France Telecom was hoping TeliaSonera investors would persuade it to enter talks.

Telia's shareholders want a higher bid and some have told France Telecom and its advisers they favour TeliaSonera entering talks with the French company to try to negotiate a higher bid, rather than turning away the approach, the sources said.

France Telecom is willing to remain in exploratory talks for a reasonable period, but is also ready to walk away from the deal, the spokesman quoted Pellissier as saying on Thursday.

He ruled out changing the share component of the deal.

Pellissier told the investors conference that contacts with TeliaSonera had taken place to "study the conditions under which formal negotiations can take place," the spokesman said.

Pellissier said the current situation "should not extend beyond a reasonable period of time."

BID INCREASE DOUBTS

Scandinavian analysts were sceptical about how far the comments pointed to France Telecom upping its informal bid.

"The kind of offer that would be approved by TeliaSonera stockholders has to be significantly better than the previous one they made," said Kimmo Stenvall, an analyst at Pohjola.

"If they think that it would only be a small increase in the offer in the cash (component), I think that will not be enough for TeliaSonera. The possibility of them (France Telecom) backing out is increasing and the possibility of them going forward is decreasing, I would say."

Sven Skold, an analyst at Swedbank, said France Telecom had little scope to raise the offer, given its financial goals.

"One should also remember that, even if the negotiations haven't started, there is already some sort of negotiation going on," he said. "And it's unnecessary to make an indicative bid and then say that you can raise it. That's a slightly bad start to negotiations, if there is going to be any.

"I think one should view most of the information coming out as tactics," he added.

France Telecom had previously given TeliaSonera two weeks until this weekend to enter discussions.

France Telecom announced its indicative takeover offer on June 5 and said it wanted a friendly deal, but would not change the indicative cash-and-shares offer.

This move -- announcing the terms of a bid without fully launching it in the hope a target company's board will be pressured into talks -- is known as a bear-hug.

It is a way of avoiding the additional costs and risks of failure associated with a full-blown hostile offer.

TeliaSonera's board and the Swedish government, which owns more than 37 percent of the company, have so far rejected France Telecom's offer as too low, prompting the French company on June 7 to set a deadline of 15 days for the sides to start talks.

Additional cash in the offer could help offset a fall in France Telecom's share price -- lowering the value of the bid -- since it announced the indicative bid earlier this month.

In a newspaper interview on June 7, France Telecom Chief Financial Officer Gervais Pellissier said the French firm could drop its offer either if its own share price continued to fall or if the bid was not accepted as friendly. (Additional reporting by Niclas Mika, Mathieu Robbins, Johannes Hellstrom; Editing by Quentin Bryar and Andre Grenon)