PARIS France Telecom is studying a possible takeover of Sweden's TeliaSonera through a share swap that could rekindle a consolidation wave in the European sector, Le Figaro newspaper reported on Wednesday.
The move would turn France Telecom into Europe's second largest fixed and mobile operator in terms of sales and give it a foothold in the Nordic countries, Russia and Turkey where it has long been keen to expand.
A spokeswoman for France Telecom, which trades under the Orange brand, had no immediate comment. The French government also declined to comment saying it would express its view when the time comes and adding that the subject had not been raised at a cabinet meeting.
In Stockholm, a spokeswoman for TeliaSonera had no comment on the report and the Swedish government also declined comment.
Analysts said the cost-savings from the deal would be limited as there was little geographical overlap and it would mark a stark change in the French telecoms operator's strategy.
"This rumor would be a real change in France Telecom's acquisition policy for 2008 as it announced just a few acquisitions in some emerging markets," Cheuvreux said in a note.
France Telecom shares were down nearly 6 percent euros at 20.88 euros by 6:25 a.m. EDT while TeliaSonera soared 8.71 percent.
Le Figaro said France Telecom was weighing the takeover of its Nordic peer with the French state, which has a stake in the former monopoly operator that would be diluted by the deal.
A Nordic banker said his bank had studied such a tie-up but concluded that it did not make real industrial sense.
The paper said sovereign funds could enter the capital of the combined group while the Swedish and Finnish states would also have a stake. TeliaSonera was formed from the merger of the incumbent Swedish and Finnish operators in 2002.
Le Figaro, which said an announcement could take several weeks, did not give its source for the information.
The move would mean that France Telecom is back again on the acquisition trail.
Its last major deal dates back to 2005 when it acquired Amena, Spain's then third-largest mobile operator.
The purchase has since proved to be more of a bane than a boon for the French operator because Amena's sales have not been as strong as expected.
The combined group would rank third in Europe in terms of market capitalization.
France Telecom has a market capitalization of about 58 billion euros ($91.81 billion) and Telia's is 202 billion Swedish crowns ($34 billion), according to Reuters data.
The pair would be worth more than Deutsche Telekom which is worth $76.6 billion but still less than Telefonica which is valued at $139 billion and Vodafone at $157 billion.
The Figaro said a deal could only be concluded if there was agreement between the various states -- France has 26.69 percent of France Telecom while Sweden owns 37.3 percent in Telia and Finland 13.7 percent.
TeliaSonera has about 115 million clients and had turnover of 96.344 billion Swedish crowns in 2007 and an EBITDA margin of 32.2 percent.
It employed 31,292 staff at end 2007 and said in February it planned to cut 2,900 jobs to save five billion crowns.
A France Telecom/TeliaSonera tie-up would be the second recent deal in which one former national monopoly telecoms supplier makes a move on another, after Deutsche Telekom agreed to buy a stake in Greek operator OTE.
On Monday, Telecom Italia's management rejected a call to merge with Telefonica while a prominent investor advocating the tie-up gained two board seats at Europe's fifth-biggest telecoms company.
The Fossati family, owner of 4.45 percent of Italy's largest phone group, called last week for a merger with the Spanish company.
(Additional reporting by Julien Ponthus, Sudip Kar-Gupta and Benjamin Mallet in Paris, Niclas Mika in Amsterdam, Eleanor Wason in London and Johan Ahlander in Stockholm; Editing by Quentin Bryar)