By Olof Swahnberg and Johan Ahlander
STOCKHOLM (Reuters) - Speculation that Telia (ST:TELIA) is lining up a bid for Danish rival TDC (CO:TDC) is wide of the mark, as the Swedish telecoms firm believes a deal would face of a host of legal, financial and political obstacles, sources familiar with the matter said.
Swedish newspaper Dagens Industri cited unidentified sources last week as saying Telia - whose top shareholder is the Swedish government - was eyeing a bid for TDC in what would be one of the largest ever takeovers by a Swedish company.
One source familiar with Telia's thinking told Reuters a mega-merger with TDC - the No.1 telecoms operator in Denmark - was not on the agenda for the Swedish company at the moment, and that Telia - currently No.3 in Denmark - was convinced a deal would run into trouble with competition regulators.
Telia is exiting its Eurasian business, its former growth engine, in the wake of international corruption probes and needs to find new growth avenues.
But competition authorities have taken a dim view on mergers in the Nordic telecoms market.
In 2015, the European Commission rejected a planned tie-up between the Danish units of Telia and Telenor (OL:TEL), the No.2 player in Denmark, due to the risk of price hikes.
"The fundamental issue is whether Telia would spend all this money on TDC and largely use up all its resources, or bet on a tonne of other things to try to rekindle growth," a second source familiar with the matter said.
"If Telia had been very interested in TDC, this would already have been on the table."
The pure industrial logic of a deal - boosting Telia's turnover and margins in a market where a relatively large number of players has weighed on all their profitability - has been clear for years.
Telia also has a market value of around 158 billion Swedish crowns (14 billion pounds), much larger than TDC's 31 billion Danish crowns ($4.5 billion).
Still, a merger has remained elusive. "All us bankers have pitched this so many times, and for so many years," said an investment banker familiar with the situation. "There is no will whatsoever that I have ever noted from Telia to actually do anything with TDC."
Telia CEO Johan Dennelind has said all options are open in Denmark. That could potentially include a merger with TDC or the smaller 3 Denmark, owned by Hong Kong's CK Hutchison (HK:0001) and Sweden's Investor AB (ST:INVEb), or even exiting the market.
Sweden's centre-left government, which has a 37 percent stake in Telia, will be key to deciding which option is taken.
But problems that past governments have had with deals, such the disastrous purchase of Dutch company Nuon by state-owned utility Vattenfall, may temper its enthusiasm for a move on TDC.
Uncertainty also lingers over the final cost and outcome of a proposed $1.4 billion settlement between Telia and U.S. and Dutch authorities over a corruption probe related to the Swedish company's entry into Uzbekistan, as well as the ongoing exit of its Eurasian business.
"The fact is that their Eurasian exit is not even near its finish yet," said a representative of a Telia shareholder who declined to be identified. "So it feels it would be good to sort that out first."