The Huawei Factor Dulls the Gleam of a Swedish Prize

(Bloomberg Opinion) -- The prospect of Sweden selling its stake in national carrier Telia Co. AB will likely attract any number of flush infrastructure funds, and raises the prospect of a big win for its chief executive officer. But national security concerns could complicate the whole affair.

Lawmakers are inching closer to divesting the nation’s remaining 69 billion krona ($7.5 billion) shareholding in Telia. Selling that 37 percent anchor stake could attract hungry buyers eager to capitalize on the data bonanza promised by 5G by owning the company’s network. This paves the way for interest from infrastructure funds, which globally raised a record $52 billion last year, according to financial data firm Preqin.

The company is potentially in play following its $1 billion agreement in July to acquire Bonnier AB’s television operations. That deal risks creating a conflict of interest for the Swedish state, which already controls broadcaster Sveriges Television. Lawmakers fear the concentration of media power in the government, and so are pushing to dump the Telia shareholding. It wouldn’t have been a huge leap for Telia CEO Johan Dennelind to predict that reaction when he agreed to the deal.

Were Sweden to sell its stake in Telia, it’s likely that new owners would be eager to replicate the approach taken by Macquarie Group, which acquired Denmark’s TDC A/S last year. Macquarie aims to divest the consumer-facing business, while retaining the underlying network, which offers more predictable long-term returns.

But one factor makes it harder to follow that playbook. Some parts of the Telia network support secure government networks, so lawmakers are understandably wary about foreign ownership.

Their worries have surely become particularly acute in recent months – the concerns raised by the U.S. about Chinese network equipment maker Huawei Technologies Co. Ltd. have heightened focus on network security. Telia could be forced to sell either those sensitive parts of its operations into state ownership or, at worst, place the whole network in the state’s hands. A government review is likely to decide.

The government would be foolish to keep the entire network. Infrastructure funds have no interest in owning Telia’s consumer-facing business in the long term. And it would diminish the state’s proceeds – it would have to front the cash to buy the network, while trying to sell its shareholding in a smaller company.

A happy middle ground for all parties may be to follow the Dutch lead. The country’s government is advancing legislation that would let it block telecom takeovers on national security grounds. Infrastructure funds that are intent on an approach in the Netherlands can provide officials with some peace of mind by teaming up with local pension funds for a bid. There’s no reason why this arrangement couldn’t work in Sweden.

As much as Dennelind has business reasons to acquire Bonnier’s TV division, it also looks like a canny ploy to strongarm the government into selling its stake. Under normal circumstances, were the government to do so, the Telia CEO would have leeway to run the company on his own terms. In particular, he’d be free to decide about selling the network to an infrastructure fund. 

Unfortunately for Dennelind, the Huawei factor wasn’t an issue when his Bonnier deal came about, and it would have been hard to predict a year ago. The upsurge in fears about state-sponsored network hacking means that lawmakers will likely take the decision to sell a major part of his company out of his hands, and may deprive infrastructure funds of what could have been an appealing investment. This is surely not his preferred outcome. Timing is, as ever, everything.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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