UPDATE 2-TeliaSonera flags Spain exit and cuts sales forecast

Thu Jul 17, 2014 8:20am EDT

* TeliaSonera says reviewing presence in Spain

* Analysts say Spanish unit Yoigo may fetch 1-1.5 bln euros

* CEO says keen to look at deals in Denmark

* Telia sees 2014 sales excluding acquisitions slightly below 2013

* Q2 EBITDA 8.84 bln SEK vs forecast 8.78 bln in Reuters poll (Adds quotes, detail, background, share)

By Sven Nordenstam

STOCKHOLM, July 17 (Reuters) - Nordic telecom operator TeliaSonera said it may quit the highly competitive Spanish market as it cut its sales outlook for the year on Thursday because of lower revenues in the country.

Yoigo, in which TeliaSonera has a 76.6 percent stake, is Spain's smallest mobile operator and European telcos are trying to bulk up via deals to combat shrinking revenue and tough competition.

Yoigo could attract interest from Britain's Vodafone and France's Orange, which are already in the country, analysts said.

TeliaSonera predicted that group sales excluding acquisitions will be slightly lower than last year, having earlier forecast stable revenue.

"Competition is fierce, forced by a strong convergence trend that puts pressure on our mobile-only business," said TeliaSonera Chief Executive Johan Dennelind, who described Yoigo's 7 percent share of customers as "sub-scale".

"Consequently, we are reviewing our future presence in the Spanish market," he added.

Analysts said Yoigo could fetch 1-1.5 billion euros ($1.35-2.03 billion).

Orange's chief executive said last week he saw possible acquisition targets in Spain, where his firm is the third largest mobile operator. Orange earlier considered buying Spanish broadband operator Jazztel but was put off by its high valuation

Vodafone, Spain's number two mobile operator behind incumbent Telefonica, in April said it might be interested in Yoigo once it became clear how tough the European regulator would be on tie-ups.

Vodafone is also flush with cash after the $130 billion sale of its stake in U.S. operator Verizon Wireless. It finalised the acquisition of Spanish cable operator Ono in July, in a sign of how mobile operators need broadband assets to be able to sell "convergent" bundles of mobile and fixed phone, Internet, and television.

The other shareholders in Yoigo are Spanish construction firms ACS and FCC, who own 17 percent and 3.4 percent. Schneider Electric owns a 3 percent stake through information technology firm Telvent.

COMPETITION CONCERNS

Consolidation in Spain would follow deals approved in recent months by European regulators that took Ireland and Germany from four to three mobile carriers.

Brussels imposed remedies to protect competition and ward off price rises in those two cases, and the rulings could provide a template for Spain.

The clearer regulatory stance may make it easier for TeliaSonera to sell Yoigo than the last time it tried in 2012 when talks foundered on price. Bidders Vodafone and Orange were worried about concessions regulators would demand.

According to data from Citigroup, Yoigo earns 5.7 percent of mobile service revenue in Spain, while Telefonica takes 40 percent, Vodafone 30 percent, and Orange 24.3 percent.

An exit from Spain would mark the end of a more than decade-long presence for the firm, originating with a stake held by Finland's Sonera with which Telia merged in 2002.

Dennelind, who took the helm in September last year, is putting his mark on state-backed TeliaSonera. He inked a deal in early July to buy Tele2's Norway business for 5.1 billion Swedish crowns ($744 million).

He also pointed to potential deals in Denmark, a small market with four mobile operators where Telia's margins are less than 15 percent, compared to group levels around 35 percent.

"Denmark is in the middle of our core Nordic-Baltic strategy where we want to be strong, where we want to be sustainable profitability-wise over time, so we are keen to look at options in Denmark," Dennelind said on a conference call.

TeliaSonera shares were down 2.4 percent at 1205 GMT, while the European telecoms index was down 1.3 percent.

"While Norway, Spain and Denmark are small assets at the group level, this new strategic direction could deliver additional value, in our opinion," Raymond James, which rates TeliaSonera shares as outperform, said in a research note.

Second-quarter sales were 25.0 billion crowns, in line with expectations and down 1.2 percent on a comparable basis.

The company's earnings before interest, tax, depreciation and amortisation (EBITDA), excluding non-recurring items, were 8.84 billion Swedish crowns versus the mean forecast of 8.78 billion in a Reuters poll and a year-ago 8.93 billion. ($1 = 6.8237 Swedish Crowns) ($1 = 0.7391 Euros) (Reporting by Sven Nordenstam and Olof Swahnberg, additional reporting by Leila Abboud in Paris; Editing by Elaine Hardcastle)

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