France Telecom continues to be interested in becoming Europe's No.1 telecommunications operator, and is willing to go further than its initial $42 billion bid to acquire Sweden's TeliaSonera AB in a cash and stock deal, reports of which first appeared on 5 June. Although TeliaSonera shareholders have asked for an increased offer, the French major is willing to increase the cash portion of its offer, but at the same time  insisted that the margin for doing so was ''extremely limited.'' (See: France Telecom makes $42-billion bid for TeliaSonera to become Europe's No.1)

These details were disclosed by France Telecom finance director Gervais Pellissier during a meeting of investors in Lisbon yesterday and later confirmed by a company spokesman. Additionally, it is seeking to reassure the Swedish and Finnish governments that they will maintain influence in the new group, even after takeover.

The Swedish government currently owns 37.3 per cent and the Finnish government a 13.7-per cent stake in TeliaSonera. Their stakes in the new group would fall to 6.5 per cent and 2.5 per cent respectively if France Telecom buys the company. In contrast, the French government, which owns 27 per cent of France Telecom, would end up holding 22 per cent of the new entity.

The French company is also reportedly willing to discuss the location of the new company's activities. While it is unlikely that the headquarters should be anywhere but Paris, Stockholm could be in charge of Northern European countries, the Baltic states and Eurasia. It may also agree to continue to list the new company's shares in Kronor in Stockholm.

France Telecom is willing to remain in exploratory talks for a reasonable period, but is also ready to walk away from the deal, the spokesman quoted Pellissier as saying. He ruled out changing the share component of the deal.

Pellissier told the investors 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."

After this news broke, local Swedish analysts weren't very optimistic of TeliaSonera investors, including the Swedish and Finnish governments, warming up to the new offer. They said that for an offer to be approved, it had to be significantly better than the last one, which it wasn't. They consider this latest statement as more of a tactical bargaining move.

As of now, France Telecom is the third-largest communications entity in Europe, after Germany's Deutsche Telekom and Spain's Telefonica SA. However, a successful acquisition can catapult France Telecom to the top of the heap with 237 million subscribers, of which 168 million would be mobile-phone users and 69 million would be fixed-line customers.

Buying TeliaSonera would be France Telecom's biggest deal since it bought Orange for £27.8bn ($55.1bn) in 2000.

Such a takeover will would add operations in the four Nordic markets, the Baltic states and countries including Kazakhstan, Azerbaijan and Uzbekistan, at a time France Telecom's CEO Didier Lombard is looking to diversify in emerging markets including Vietnam and Ghana, where mobile-phone use is growing faster than in the operator's main markets of France and the UK.

However, some analysts have been critical of the proposed deal, citing little overlap between the two groups, whose core operations lie in mature Western markets. They especially pointed towards the tough competitive dynamics in Sweden, the limited synergies of any deal apart from the closing down of TeliaSonera's loss-making Spanish operations and the lack of control over Russia's Megafon and Turkey's Turkcell, in which TeliaSonera has minority stakes.