Teliasonera is selling its Spanish mobile operator Yoigo, four people familiar with the matter said, in a $1.2 billion plus deal that could attract tycoon Carlos Slim, Vodafone and France Telecom as bidders.
The Nordic telecoms group has hired Deutsche Bank to manage the disposal of its 76% stake in Yoigo (Madrid, Spain), the sources said, as it exits non-core markets in favor of its Scandinavian heartland and higher-growth central Asia.
Deutsche Bank advised Slim, the world's richest man and boss of Mexican telecoms group America Movil, on his acquisition last month of a 27.7% stake in Dutch telecom company KPN (The Hague, Netherlands), which attracted overwhelming support from investors. America Movil (Mexico City, Mexico) has also taken a 23% stake in Telekom Austria (Vienna, Austria).
Slim told Reuters last week that he had no immediate plans for further purchases in Europe following the two investments, but the sources said that America Movil was likely to at least consider Yoigo because it is an attractive asset.
"I think Slim will take a look, yes. He is opportunistic. What he does or does not do will depend on price," one of the sources said.
America Movil, Teliasonera (Stockholm, Sweden) and Deutsche Bank declined to comment. Yoigo was not available for comment.
The sources said that Vodafone (London) and France Telecom (Paris) were natural bidders for Yoigo because all of Europe's major telecom groups are looking to scale up in their main markets, while exiting countries where they are weak to cut debt. If they took out the Spanish player most aggressive on price, both Vodafone and France Telecom would benefit and be more able to compete with market leader Telefonica (Madrid, Spain). Telefonica could also bid for Yoigo, two sources said.
But such a move could be tough given Telefonica's heavy debt load and could pose regulatory concerns given that it holds 43% of the mobile market. Vodafone hold 31% and France Telecom 21% market share.
Vodafone and France Telecom have already sold assets and Telefonica plans to follow suit as austerity weighs heavily on its performance at home.
Teliasonera, though far less leveraged than peers like Telefonica and KPN, sold part of its stake in Russian telecom operator MegaFon (Moscow, Russia) in April, sending its shares up 8% and netting a return of 18 times its original investment.
Since Teliasonera is flush after the MegaFon sale, it does not need to sell Yoigo for a low-ball price just to cut its debt so could demand a higher valuation, analysts said.
By taking the Spanish market from four to three players, the remaining groups would achieve better pricing power and the buyer would also gain synergies.
Both Vodafone and France telecom see Spain as an important country: it is Vodafone's fourth largest market in terms of revenue and France Telecom's second.
"Vodafone and France Telecom would be conceptually interested and both have the capacity to do a relatively modest acquisition," said Guy Peddy, an analyst at Macquarie Securities Group.
Vodafone had about 7.14 billion pounds in cash on its balance sheet at end March and its credit metrics are strong, according to credit analysts, suggesting it has ample firepower to buy Yoigo if it wants to.
France Telecom had $14.5 billion in cash at the end of the first quarter in May. But it may need to be more careful on the acquisitions front because two ratings agencies have put its credit rating on watch negative due to the deteriorating outlook in its home market.
Chief Executive Stephane Richard told Reuters in February that 2012 would likely be a calm year on the M&A front and that the group needed to be careful managing its debt.
Vodafone declined to comment. France Telecom and Telefonica were not immediately available for comment.
(Writing and additional reporting by Leila Abboud; Editing by Erica Billingham and David Cowell)