Political, personal issues doomed Telia/Telenor

National pride and politics were largely to blame for the failure of what would have been Scandinavia's largest merger, according to analysts. For Sweden's Telia and Norway's Telenor, however, the focus is now squarely on how to unravel the complex deal.

Tormod Hermansen, chief executive officer of the newly-formed joint company, announced the deal was off, saying that the Norwegian and Swedish governments - which co-owned the new company - had no choice but to reverse the decision.

The news did not come as a great shock, as conflicts about how the merged company should look have plagued both sides since the merger was first announced in January. Elaborating last night, Telenor spokesman Dag Melgaard confirmed that differences in the board and top management were irreconcilable.

Mikael Sandberg, an investment analyst with Regency Capital International in London, attributes the deal's failure largely to a "personality fall-out," between Hermansen and Telia's top management. Although Hermansen was the chief executive officer of the joint company, only last week, Telia managers were asking that he be relieved from his duties, a demand the Norwegians could not live with.

Even more jarring was the issue of where the flagship business unit - the joint carrier's wireless activities - would be located. Although a majority of board members voted for Stockholm, the Norwegians protested the decision.

"In the end, I think the Norwegians were unwilling to swallow their pride and play a secondary role," said Susen Sarker, telecommunications analyst with the Yankee Group in London.

Both analysts agree that politics and national pride dogged the negotiations, with top government officials from both sides getting involved.

"As an investor, I see it as a great loss," Sandberg concluded. "They could have created something very interesting."

That is cold comfort now to the two carriers, who must now take on the arduous task of undoing their merger.

The first priority is to dissolve the joint company and its new offices, and split the expenses incurred by the merger, Telenor's Melgaard said. The carriers will also have to continue negotiations on topics such as what to do about a joint hostile bid launched against Irish telecommunications company Esat Telecom Group PLC earlier this month, he said.

After that, Telenor will concentrate on its own privatisation, a move that was already decided on by the Norwegian Ministry of Transport and Communications even before the deal with Telia, Melgaard said.

Telia, for its part, will be spending time explaining the company's future focus to employees, according to Marianne Laurell, Telia press officer. From listening to Laurell, it sounds as if Telia had its doubts all along about the merger with Telenor. "There is a back-up plan," she said. "Now its full-speed forward."

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