Merger of Telenor and Telia runs into trouble

The planned merger of Telia and Telenor, the Swedish and Norwegian state-run telephone companies, could be jeopardised by growing political difficulties and management recriminations over the structure of the deal.

Telia owns 8 per cent of Telecom Eireann, while Telenor currently owns 45 per cent of Esat Digifone, which is in the process of rising to 49.5 per cent.

The merger - if it went ahead - was expected to lead to Telia selling its Telecom shares to the other strategic alliance partner, KPN of the Netherlands.

This would be to avoid a conflict of interest with the company having stakes in both the Irish mobile phone operators - Eircell and Esat Diginfone. However, the merger now appears to be under threat. Differences have emerged between the two governments and management teams following two months of talks aimed at creating a Nordic telecommunications group with an estimated market value of 300 billion Swedish krone (€33.5 billion)

Officials on the Norwegian side have accused Telia managers of trying to "sabotage" the merger, while people close to the Swedish company have complained that the deal overvalues Telenor and does not take account of Telia's restructuring efforts.

If the deal collapses it would mark the second abortive attempt to unite the companies. Last year, merger talks foundered on failure to agree valuations and a management structure. The latest attempt - announced with a fanfare by the Swedish and Norwegian governments in January - was due to have been completed last week. But it has been delayed pending the completion of due diligence and management discussions.

Neither company nor government would comment. But according to people close to Telia, senior managers at the Swedish company are unhappy at demands by the Norwegian side to base several divisions of the enlarged group in Norway rather than Sweden.

They were also said to regard Telenor as "six to seven years behind Telia" in terms of restructuring and profitability. "This means the whole valuation is wrong."

Telia insiders claim the enlarged group - due to come to the market before the end of 2000 - should be weighted 80-20 in favour of the larger Swedish group, rather than the 60-40 arrangement outlined in a letter of intent in January.

Telenor claims it has been the victim of a whispering campaign by Telia managers who fear their jobs might disappear.