France Telecom mulls higher cash bid for TeliaSonera

France Telecom said on Thursday it had opened talks about whether to enter formal negotiations with TeliaSonera and could sweeten its indicative $41 billion bid for the

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Swedish-Finnish group.

The talks about talks were disclosed by Finance Director Gervais Pellissier in 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.

France Telecom shares fell around 2.4 percent, while TeliaSonera shares fell 3.1 percent.

Pellissier's comments came after sources familiar with the matter said on Wednesday that France Telecom was hoping TeliaSonera's 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 its French suitor to try and negotiate a higher bid rather than turning away the approach, the sources said.

France Telecom is willing to remain in the exploratory talks for a reasonable period of time 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 investor 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".

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

"Either TeliaSonera agrees to have a proper dialogue on the offer or France Telecom will walk away," said one of the sources on Wednesday. "They will not bid against themselves."

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

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

It is a way of avoiding the additional cost and risk 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 rejected France Telecom's offer as too low, prompting the French company on June 7th 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 7th, 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.

AFX