Telia, Sonera clean house ahead of merger

STOCKHOLM

Swedish and Finnish state-controlled telecom operators Telia and Sonera said they were in the process of putting their houses in order as they prepared to merge before year-end.

The future group, to be called TeliaSonera, is set to become the largest telecom operator in the Nordic-Baltic market.

The new company will have 49 percent stakes in both Latvia's and Estonia's fixed-line monopolies Lattelekom and Eesti Telekom, as well as a 49 percent stake in Latvia's largest mobile operator LMT.

In Lithuania, it will hold a 60 percent stake of Lithuanian fixed-line operator Lietuvos Telekomas in addition to 55 percent in mobile company Omnitel.

Two weeks ahead of the close of Telia's share offer for Sonera, the groups presented healthy third quarter figures and said they were restructuring their operations at the request of European competition authorities and focusing on core activities.

Sonera announced a return to profit following a financial restructuring program designed to pave the way for the tie-up as it continued to pay off the mountain of debt it acquired after investing over eight billion euros in European third-generation, or 3-G, mobile phone licenses.

The group, in which the Finnish state owns 52.8 percent, wrote off part of the 3G investments as a 4.3 billion loss in July, sending its debt ballooning to more than five billion euros. Sonera said it had reduced the debt level to 2.13 billion euros as of the end of September.

It reported net earnings in the third quarter of 47 million euros compared to a net loss of 325 million euros a year earlier.

Earnings before interest, taxes, depreciation and amortization, a measure of a company's operating performance, rose from 183 million euros to 199 million euros, the company's best ever quarterly result, it said.

Telia meanwhile posted a net loss of 10.1 billion kronor (1.1 billion euros) in the quarter, compared to a net profit of 1.9 billion kronor a year earlier.

Results were weighed down by exceptional charges of 12.1 billion kronor, which covered restructuring at the company's ailing fixed-line telephone network in Denmark and at its Telia International Carrier unit.

However, the group's overall balance sheet was strong, with progress made on the operations side.

Earnings before taxes rose by 25 percent to 4.2 billion kronor, well above analysts' expectations of 3.9 billion.

"The efficiency programs carried out during the year are beginning to yield positive results," Anders Igel, Telia's chief executive officer, said in a statement.

In line with EU requirements for the merger, Telia, 70.6-percent-owned by the Swedish state, has agreed to divest its Finnish mobile operations and its cable television business in Sweden.

Under the terms of the merger deal, Telia's shareholders would hold 64 percent of the new entity while Sonera would get 36 percent.

Telia, which has offered 1.5 of its shares or 4.60-4.70 euros in cash for each Sonera share, will announce Nov. 14 whether it managed to convince Sonera's shareholders to accept the deal.