France Telecom said Thursday it had opened talks on a $42 billion takeover bid for TeliaSonera that would create the world's fourth-largest telecommunications operator.The Swedish telecom immediately dismissed the bid as to low, sending it shares jumping nearly 7 percent to 57.75 kronor ($9.56) with some analysts in agreement. France's dominant telecom operator stopped short of a formal offer, but said it's bid would amount to a 39 percent premium on TeliaSonera shares based on an April 15 closing price, when reports first surfaced that France Telecom had the backing of the French government.

In a statement, France Telecom said it sent the "indicative proposal" to the board and the two largest shareholders of the Swedish company. The proposal would involve cash — equivalent to $10.43 per share — and stock based on an exchange ratio of three newly issued France Telecom shares for every 11 TeliaSonera shares.



Stockholm-based TeliaSonera outright rebuffed such a deal, which the Swedish company said amounts to only $9.30 per share, saying it "substantially undervalues the company."

France Telecom CEO Didier Lombard said in a conference call that he spoke to his counterpart at TeliaSonera on Wednesday night. He said that discussions are still under way on firming up the offer.

Lombard said he hoped to wrap up a takeover by year-end. He said the possible bid would accomplish two of France Telecom's objectives: Expanding into mature markets and exposing France Telecom to more emerging markets.

"There is an evolution of all mature markets and if you don't have a certain consolidation of activities — including Internet and mobile phones — you will progressively have competitive difficulties," Lombard said.

He pointed out France Telecom's presence in Africa and TeliaSonera's strength in Eurasia.

Several analysts questioned the price tag and strategy laid.

"This offer is definitely too low," Oko Bank analyst Kimmo Stenvall said, noting it would only offer about a 5 percent premium to TeliaSonera's 12-month average share price because a large chunk of the payment would be made in France Telecom shares. "They have to raise the cash component, or offer more shares."

Some analysts were puzzled that France Telecom based its claim of a 39-percent premium for TeliaSonera shares on analysts' consensus target that France Telecom shares will rise to 24.25 euros ($37.51) — rather than on the French company's current price. Based on that existing price, the deal would value TeliaSonera at around 27.4 billion euros ($42.3 billion), Stenvall said.

France Telecom shares fell 4.1 percent to 18.44 euros ($28.52) at the open of Paris trading.

In April, France Telecom said it was considering possible Nordic acquisitions, including TeliaSonera and Norway's Telenor.

A French newspaper report at the time said a deal with TeliaSonera would have the backing of the French government, which holds 27.4 percent of France Telecom. The Swedish government owns 37.3 percent of TeliaSonera, and has announced plans to sell its stake. Finland's government owns 13.7 percent of TeliaSonera.

The new company, if it is created, would have 237 million subscribers and holdings in developed and emerging markets, France Telecom said. Benefits from the "resulting combination of nimbleness and scale" would include "advantageous partnerships" with software, hardware, content and advertising providers, it said.

Citing "market consensus forecasts," France Telecom said the deal would boost earnings per share starting in 2009 and increase free cash flow starting two years later.

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Associated Press writer Louise Nordstrom in Stockholm, Sweden, contributed to this report.

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