Unions support Sonera and Telia merger plans

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In late March 2002, two telecommunications companies, the Finnish Sonera and Swedish Telia, announced their intention to merge. The merger would create the largest telecommunications operator in the Nordic countries and a significant operator on the European scale. According to the companies, the merger will not result in job losses at this stage. Trade unions state that they are satisfied with the plan and believe that jobs will be secure.

A long-forecast merger between Nordic telecommunications operators seems likely to become a reality with the announcement on 26 March 2002 by the Finnish-owned Sonera and Swedish-owned Telia that they intend to join forces. The merger will involve a share exchange, with the current Telia shareholders owning 64% of the new company and current Sonera shareholders 36%. Both companies are mainly state owned - the Swedish state owns 70% of Telia, and the Finnish state 53% of Sonera. The Swedish state would own 45% of the new merged company, and the Finnish state 19%. The combined preliminary pro forma revenues of the companies was EUR 9 billion in 2001. The new company would have a workforce of about 35,000. Because the new operator would have a large market share, the merger requires approval from the European Union competition authorities.

Background to the merger

A background factor to the merger is the expansion of Sonera into the global telecommunications markets. The company decided to take part in the auctions of 'third-generation' (universal mobile telephone services, UMTS) mobile telecommunications licences held in several countries in 2000. The licences became very expensive and Sonera got into heavy debt. In autumn 2001, the company tried to find a way out of its dire straits by announcing a 10% cut in its workforce (FI0108100F). However, instead of making 1,000 employees redundant as originally planned, it subsequently decided to decrease the number to 500 (FI0110102N).

Then, in November 2001, the company decided on a share issue whereby it acquired new equity worth about EUR 1 billion. The Finnish state subscribed to shares amounting to about half of this sum. This operation was intended to strengthen the balance sheet of Sonera and take care of the debt problem. At the same time, speculation about a possible merger with another operator increased. Rumours of a merger between Sonera and Telia had already been strong earlier in the autumn, but at that stage the negotiations failed to reach a result. After the equity injection, however, both companies were prepared to merge.

Unions embrace the deal

The Communications Union (Suomen tietoliikenneliitto, TLL), an affiliate of the Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK), regards the merger of Sonera and Telia as part of an inevitable development. After hearing the news, the chair of the union, Tapio Vaahtokivi, stated that mergers are dictated by economies of scale – only large companies can survive in the global competition. The best solution, from his viewpoint, is one where cooperation emerges from both partners having the same kind of operational culture and similar terms of employment and 'rules of the game' and 'in this respect, Telia can be considered a good partner for Sonera.' TLL regards it as important that the company's bargaining system should stay as before – the present agreements and partners should remain in place and the benefits of the personnel therefore be safeguarded.

The Metalworkers' Union (Metalli), affiliated to the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK), is also taking the merger calmly. In the view of the union's secretary, Erik Lindfors, Nordic development in telecommunications must be strengthened in order to stand up to the larger European operators. In his estimation, the merger would not decrease jobs in Finland. In addition, the Swedish Union for Service and Communication (Facket för Service och Kommunikation, SEKO) and the Swedish Union for Technical and Clerical Employees in Industry (Svenska Industritjänstemannaförbundet, SIF) are taking a positive attitude about the proposed merger (SE0203106N).

No job losses announced

At this stage, the companies have announced that there would not be any need for workforce reductions after the proposed merger. Telia has a personnel of about 25,000, and Sonera about 10,500. Operational management will be shared in the new company, with an (as yet unspecified) Swede holding the post of managing director. The present managing director of Sonera, Harri Koponen, is to become the vice managing director of the new company. The chair of Sonera's board, Tapio Hintikka, will conduct board meetings in the new company also. Lars-Eric Petersson, a Swede, has been chosen for the position of vice chair. The net debt of the new company will be EUR 3.9 billion, which equals a 29.6% net debt to equity (gearing) ratio. The ratio for Sonera was formerly 71.2%, which means that the debt problem will be under control in the new company. However, the companies' share prices dipped after the merger news was announced, which was considered a little surprising.

As to subsequent moves, the new managers announced that 'this is only a start for future operator mergers.' There have been suggestions that the Danish telecommunications operator, TDC, may join the new company, constituting a similar kind of Nordic merger between Finnish, Swedish and Danish firms as has occurred in the banking sector.

Commentary

European telecommunications operators are making preparations for the launch of the third-generation mobile telecommunications technology . The planned merger between Sonera and Telia has been forecast for a long time. This merger is a natural one because the operational cultures are equivalent and the firms' home markets consist of the Nordic and Baltic countries. The new company would become the biggest telecommunications operator in the area. Telia had to seek a new partner, because otherwise it would have been a small player confined to the Nordic countries. Sonera was an easy co-partner, because it has business activities in many European countries and also globally – extending to the large Russian markets. Telia needed opportunities for expansion and Sonera needed help with its debt problems. Telia has a strong balance sheet and the new company has better chances of survival in increasingly competitive market. The merger is unproblematic for the unions, too, at any rate as long as no job losses have been announced. When the new company's business activities start in reality, some rationalisation is to be expected, but also a need for personnel due to growth. Dismissals on a mass scale are hardly likely, because that would be very hard for Sweden's Social Democratic government to accept. (Juha Hietanen, Ministry of Labour)

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