June 19, 2008 / 7:12 AM / 11 years ago

UPDATE 4-Norway's Telenor eyeing M&A, sees inflation risk

(Adds CFO comment; updates shares)

By Wojciech Moskwa and Camilla Bergsli

OSLO, June 19 (Reuters) - Norwegian telecom group Telenor (TEL.OL) said on Thursday it was actively evaluating mergers and acquisitions, without indicating any specific interest in larger Nordic rival TeliaSonera TLSN.ST.

Telenor, a $35 billion group with 150 million mobile clients in Europe and Asia, also said it saw effects of high food and energy prices crowding out spending on telephony.

Media reports have said Telenor is interested in creating a Nordic telecoms giant by buying Swedish-Finnish TeliaSonera, which has rejected a $41 billion bid by France Telecom FTE.PA.

Telenor said it was “actively exploring M&A opportunities”, including “expansion within existing regional clusters and complementary business in existing markets and a more flexible approach to control”.

“When it comes to actual and practical transactions, there will be no comments from Telenor,” Chief Executive Jon Fredrik Baksaas told the company’s capital markets day event.

He said there were some Asian markets where Telenor may benefit from a more flexible approach, meaning that the company takes a minority rather than majority stake in a target.

Shares in Telenor were up 0.2 percent 105 crowns at 1247 GMT outperforming a 0.2 percent dip in the DJ Stoxx Telecoms Index .SXKP. Oslo’s benchmark index .OSEBX was 0.2 percent higher.

Analysts have been cool on the notion of Telenor buying TeliaSonera, saying they overlapped in many markets and fearing a hefty share issue but some politicians have talked up a bid.

France Telecom’s chief financial officer told investors on Thursday that the company was in talks about starting formal negotiations with TeliaSonera, but said there was extremely little room to alter its offer.

Analysts have said the likelihood of 54 percent state-owned Telenor bidding for TeliaSonera was small. Some pointed to CFO Trond Westlie’s announcement of a 10,000 share purchase and said it indicated that he had no insider knowledge of any deal.

“The CFO bought shares today, that must be a signal that they are not in (a merger) process,” said SEB Enskilda analyst Ole Petter Kjerkreit.

Westlie told Reuters on the sidelines of the investor event that the company was sticking to all its current financial targets and had nothing new to add.

INFLATIONARY IMPACT

Baksaas said a global resurgence in inflation, fuelled by soaring energy and food prices, would hit the telecoms industry which effectively competes for a share of increasingly squeezed family budgets.

“It remains to be seen if we get that significant negative impact, but of course it will play a role,” he said, adding that the impact was likely to be bigger in poorer countries.

But he also said the higher inflationary environment could slow a long-term telecoms industry trend of price cuts.

“In this industry we have only seen price reductions in past years. In an inflationary environment we could see downward pressure become softer,” Baksaas said.

SEB’s Kjerkreit said inflation would push up Telenor costs but that he would not change his estimates much because of it.

Telenor said its mobile subscriber base grew to 150 million customers. The group has 60 million clients in Asia — where it is the biggest non-Asian operator — although Vodafone (VOD.L) was catching up due to its growing operations in India.

“We have become one of the largest operators in mobile services in the world,” Baksaas said. “At year-end we had the position of number 7.” (Additional reporting by John Acher; Editing by Tony Austin/Elaine Hardcastle)

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