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France Telecom on Tuesday confirmed that it was carrying out due diligence on Amena, the mobile operator that is a unit of Spain's Auna, with a view to possibly making a bid.
Amena is thought to be worth about €9bn ($10.8bn), including debt, and any offer from France Telecom would be expected to include a mixture of cash and shares. BNP Paribas is understood to be advising the French group.
France Telecom would be gatecrashing an auction that has been dominated by private equity groups. Merrill Lynch has been trying to sell Auna, which also has a fixed-line and cable business worth about €2.6bn. Last week, it received one private equity bid for the whole of the business.
A second consortium tabled a bid for Amena, linked with a separate offer for the fixed-line and cable business from a group led by Ono, Auna's rival.
France Telecom, justifying its sudden interest, said it had previously thought a separate bid for the mobile business was not viable.
“Since then, the sale ofthe mobile assets separatefrom the cable assets has become a viable option,” it said.
France Telecom has about 500,000 broadband customers in Spain but no mobile business. But it would need to persuade owners of its shares and its debt of the merits of a deal.
On Tuesday, analysts at Morgan Stanley said that, while they thought a bid made strategic sense, they were not convinced that France Telecom could do it without diluting free cash flow per share something it wants to avoid.
Auna's shareholders on Tuesday declined to comment on the possible France Telecom bid, saying it would be studied along with the rest if tabled.
However, other people familiar with the bidding process said the inclusion of shares in the offer might make it less attractive to the three main shareholders: Banco Santander, Unión Fenosa and Endesa.
Santander bought its stake in the company long after its creation, meaning it paid more than the other shareholders, which stand to make large capital gains.
The bank, like its competitors, is also gradually unwinding its industrial portfolio to focus on expansion in its core business, so might feel uncomfortable holding shares in France Telecom.