June 5 (Bloomberg) -- TeliaSonera AB and the Swedish government, the Nordic phone company's largest shareholder, rejected a 252.5 billion-krona ($41.9 billion) bid from France Telecom SA and said they're open to higher offers.

France Telecom bid 56.23 kronor in cash and stock for each TeliaSonera share. The proposal is 26 percent higher than the April 15 close, the day before speculation about a merger began. TeliaSonera Chairman Tom von Weymarn said in an interview the offer is ``far below'' the Stockholm-based company's value. TeliaSonera shares closed higher than the offer.

France Telecom Chief Executive Officer Didier Lombard set a 15-day deadline to reach an agreement and said he won't attempt a hostile takeover. The world's second-biggest acquisition this year would add Nordic assets and units in emerging markets from Russia to Kazakhstan, boosting customers by 39 percent to 237 million. Sweden began a program to sell state assets in 2006 and said today it will welcome all bids for its 37.3 percent stake.

``The question is how much can they raise the offer,'' Thomas Romig, a fund manager at Cominvest Asset Management in Frankfurt, which has $97 billion under management, said in a Bloomberg Television interview today.

TeliaSonera rose 3.5 kronor, or 6.5 percent, to 57.25 kronor in Stockholm. France Telecom fell 98 cents, or 5.1 percent, to 18.25 euros in Paris, and has lost 18 percent since Le Figaro reported April 16 France Telecom's interest in the TeliaSonera.

France Telecom Strategy

Lombard said he spoke with TeliaSonera's von Weymarn last night, and said the dismissal of the offer was ``logical.''

``As a chairman he defends his shareholders, so the first position he has to take is to ask for more,'' Lombard said on a conference call with reporters. ``I'm not shocked. I don't consider the situation to be blocked, and we have 15 days of discussion ahead of us.''

France Telecom said in a statement today it will pay in cash for 52 percent of TeliaSonera, and 48 percent in stock. It will offer three new France Telecom shares for 11 TeliaSonera shares, with a cash guarantee option for the first 500 shares.

Finland, which owns 13.7 percent of TeliaSonera, ``will review and assess the offer,'' Jyri Haekaemies, a cabinet member and the minister in charge of the state shareholding agency, said in a statement. ``We may expect new offers in the future.''

Telenor Interest?

Telenor ASA, the Nordic region's biggest phone company, is considering acquiring TeliaSonera and hired Nordea Bank AB and JPMorgan Chase & Co. to evaluate a possible deal, Svenska Dagbladet reported April 29, citing unidentified people familiar with the plan. The two companies first established contact a year ago, the newspaper said.

A merger between Telia AB and Norway's Telenor ASA failed in December 1999 after two years of talks because the governments couldn't agree on which country should run the new company. Telia instead acquired Finnish counterpart Sonera Oyj in 2002.

France Telecom's offer values TeliaSonera at 14.6 times estimated 2008 earnings per share, versus 12.6 times for the average Western European phone company, according to data compiled by Bloomberg.

``That's a pretty steep premium and to be honest I don't see the logic behind it,'' said Chris-Oliver Schickentanz, head of company research at Dresdner Bank AG. ``There will be some minor synergies in Spain but other than that nothing significant.''

Cost Per Subscriber

France Telecom's offer values each of TeliaSonera's 114 million customers at about $368. That compares with the $454 Verizon Wireless agreed to pay for each of Alltel Corp.'s 13 million customers when excluding the debt portion of the deal.

Lombard is seeking growth in emerging markets, where mobile- phone growth is faster than in Western Europe. The company also needs to bulk up in the face of competition for services from the likes of Google Inc., Nokia Oyj and Microsoft Corp., he has said.

France Telecom has introduced Internet TV and bought content such as the rights to French soccer matches to keep fixed-line clients and spur sales per user. Growth at home is held back by competition from Neuf Cegetel and Iliad SA, and because nine out of 10 French people already have a mobile-phone account.

Deutsche Telekom AG is now Europe's biggest phone company, followed by Telefonica SA.

Financing Plan

Some investors said the offer isn't high enough. ``The bid is a little on the low side,'' said Per Colleen, head of Swedish equities at DnB Nor Asset Management in Stockholm, which manages the equivalent of $5.8 billion.

France Telecom has approached banks for 10 billion euros of financing for the purchase, according to two bankers with direct knowledge of the matter. The purchase would be France Telecom's largest since 2000, when it bought Orange Plc for 27.8 billion pounds ($55.1 billion). The move is the biggest announced offer since the $147.4 billion hostile bid for Rio Tinto Group by BHP Billiton Ltd., the world's largest mining company, in February.

The acquisition would add to France Telecom's earnings per share beginning next year, and would become accretive in 2011 to free cash flow per share. France Telecom said it will only pursue a friendly takeover and that it would list its shares in Stockholm and Helsinki after the purchase.

The merger would save almost 700 million euros a year by 2013 on lower purchasing and research costs, France Telecom said.

``We still doubt that the level of synergies will be sufficient to justify such a deal,'' Stefan Borscheid, a WestLB analyst in Dusseldorf, said in a note to clients. He said he's putting his ``add'' rating on France Telecom under review.

Telecom Deals

The offer is the biggest of three telecommunications deals brewing this week. Telkom South Africa Ltd., with a market value of $10.3 billion, said June 2 it received a takeover offer from Mvelaphanda Holdings Ltd. In the U.S., Verizon Wireless agreed today to buy Alltel Corp., a wireless provider that was taken private seven months ago, for $28.1 billion in cash and debt. Verizon Wireless is owned by Newbury, England-based Vodafone Group Plc and New York-based Verizon Communications Inc.

Telecommunications deals have risen 10 percent to about $144.2 billion this year compared with $130.6 billion in the same period a year ago. This is amid an overall dip in deal-making this year to $1.29 trillion compared with $2 trillion in the same period in 2007, according to data compiled by Bloomberg.

Former phone monopolies have been looking outside their home markets for acquisitions in the past year. Spain's Telefonica SA bought a controlling stake in Telecom Italia SpA in October with partners including Mediobanca SpA and Assicurazioni Generali SpA. Deutsche Telekom last month agreed to pay 3.2 billion euros for control of Greece's Hellenic Telecommunications Organization SA.

`Strategic Opportunity'

France Telecom said April 18 that Sweden's sale of TeliaSonera would be a ``strategic opportunity.'' Sweden plans to sell assets worth at least 200 billion kronor by the end of 2010.

Financial Markets Minister Mats Odell said today the government backs TeliaSonera's rejection of the offer.

The Swedish state is selling other assets to French buyers. Pernod Ricard SA, the world's second-largest liquor company, on March 31 agreed to buy Stockholm-based Vin & Sprit AB, the maker of Absolut vodka, for 5.28 billion euros from the government.

TeliaSonera CEO Lars Nyberg is seeking growth in Eurasian countries to add to assets in Spain, Turkey and Tajikistan.

Eurasian sales grew 22 percent to 10.3 billion kronor last year, or about 11 percent of TeliaSonera's total revenue, fueled by subscription growth and increased usage in Kazakhstan and Azerbaijan. The company owns 37 percent of Turkey's Turkcell Iletisim Hizmetleri AS and 35.6 percent of Russia's OAO MegaFon.

TeliaSonera's origins date back to 1853, when the government created Kongl. Elektriska Telegraf-Verket to run a 70-kilometer (44-mile) telegraph line linking Stockholm and Uppsala. The company installed its first telephone line a year after it was invented in 1876.

France Telecom's revenue increased 2.4 percent to 53 billion euros last year, and net income reached 6.3 billion euros. TeliaSonera's sales rose 5.8 percent to 96.3 billion kronor, with profit of 17.7 billion kronor.

To contact the reporter on this story: Maria Fredriksson in Stockholm at mfredriksson@bloomberg.net; Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

Last Updated: June 5, 2008 11:59 EDT