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2004.06.002

International Business Review 13 (2004) 573–594

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Why did the Telia–Telenor merger fail?

Tony Fang �, Camilla Fridh, Sara SchultzbergSchool of Business, Stockholm University, 10691 Stockholm, Sweden

Abstract

The purpose of this article is to examine through a case study of the merger of Telia–Telenor why firms from apparently similar national cultures can fail to form a co-operativeventure. Telia and Telenor were the largest telecom operators in Sweden and Norway,respectively. Both were government-owned with a strong monopoly over their respectivenational markets for a long time. Despite perceived similarities between the negotiating par-ties in national culture, corporate practice, and language, the negotiation eventually wentaskew and the ongoing merger ended in December 1999 after only two months in existence.We describe the process of the Telia–Telenor merger negotiation and analyze it from a cross-cultural management perspective. Our major finding is that historical sentiments, feelingsand emotions, if not handled well, can cause fatal damage to cross-cultural businessventures.# 2004 Elsevier Ltd. All rights reserved.

Keywords: Telia; Telenor; Merger negotiation; History; Culture

1. Introduction

Throughout the last decade, mergers and acquisitions (M&A) have dominated

the world economic scene (Buckley & Ghauri, 2002). Cross-national M&A, in

particular, have attracted increasing academic and managerial attention in the

international business and management literature (de Beaufort & Lempereur, 2002;

Hopkins, 2002; The Economist, 2002; The M&A Group, 2002).‘‘The business of international business is culture’’ (Hofstede, 1994). Academic

text as well as popular writings emphasize culture, or more specifically, national

cultural differences, as the fundamental predictor of the dynamism of international

management behaviour explaining why many cross-border ventures have failed

T. Fang et al. / International Business Review 13 (2004) 573–594574

(e.g., Bjerke, 1999; Gesteland, 2002; Hofstede, 1980, 1983, 1991, 1993, 2001; Joynt& Warner, 2002; Lewis, 1999, 2003; Schneider & Barsoux, 2003; Trompenaars,1994).Kogut and Singh (1988) have discussed the concept of national cultural distance,

which is conceived of as the cultural norms in one country being different fromthose in another country. Baarkema, Bell, and Pennings (1996) find that culturaldistance is negatively correlated with the longevity of foreign operations, suggest-ing that the shorter the distance the longer the life expectancy of ventures acrossnational boundaries.International or cross-cultural negotiation studies also point out that cultural

differences, if not handled properly, would jeopardize international co-operativerelationship in general and negotiation outcome in particular. Cultural differencestend to cause poor communication, misperception, and misunderstanding, oftenleading to a failure of business in cross-cultural environments (Brett, 2001; Buono,Bowditch, & Lewis III, 2002; de Beaufort & Lempereur, 2003; Faure & Rubin,1993; Hall, 1976; Hofstede, 1989; Hofstede & Usunier, 2003; Hopkins, 2002;Usunier, 2003). Recent research on M&A negotiation reveals that many failures ofM&A find their cause in the mismatch in cultures (The Economist, 2002) and thelack of fruitful contacts and information exchange between the two sides at variousstages (de Beaufort & Lempereur, 2002).While much importance has been given to the consequences of cultural difference

for cross-border businesses, insufficient attention has been directed to researchingcross-cultural similarities and their implications for international business. The lackof study of cultural similarities seems to have produced an illusion that culturalsimilarity is a less interesting subject; short cultural distance would only help createbetter mutual understanding and communication, which in turn would result inpositive outcomes.

1.1. Telia–Telenor

The failure of one of the largest mergers in the modern Nordic history, occurringin 1999 between Telia and Telenor, has triggered our curiosity. Telia was Sweden’slargest, and for many decades, sole telecom operator. Telenor has been Norway’slargest telecom operator. Telia and Telenor were both government-owned and hada strong political influence and monopoly position in their respective national mar-kets historically. Given their long-standing influence in their respective nationalmarkets, Telia and Telenor were regarded as a kind of national symbol by peoplein their respective nations. Despite similarities and nearness in national culture,corporate practice, and language, and despite the fact that the EU had approvedthe merger, the Telia–Telenor negotiation eventually went askew. On 16 December1999, the Telia–Telenor merger ended after only two months in existence. The fail-ure of the merger had cost Telia SEK 200–250 million alone.While some analysts described the failure of Telia–Telenor merger as one of the

largest industry project fiascos in modern Nordic history, a few executives involvedin the Telia–Telenor merger process considered the break-up a suitable way out for

575T. Fang et al. / International Business Review 13 (2004) 573–594

both parties. ‘‘Had the merger been allowed to continue,’’ one said, ‘‘it was likelythat political relations between Sweden and Norway would have been influencednegatively, as the project involved keen commitments from both Swedish andNorwegian governments.’’ The strategic intent of the Swedish government was touse the ongoing merger to bolster the privatization process of Telia and in turn tohave the company listed on the stock market, while the Norwegian governmentseemed to attempt to use the merger to reinforce an increasingly powerful nationaltelecommunications sector led by Telenor. After the short-lived merger, both com-panies seemed to have pursued their BATNA (Best Alternative to a NegotiatedAgreement; Fisher & Ury, 1981). Structured reforms were carried out on corporategovernance. Telia was listed in the Stockholm Stock Exchange in 2000, and itmerged with the Finnish telecom operator Sonera in 2002 to become TeliaSonera,which now is the leading telecommunications group in the Nordic and Balticregions. Telenor was also listed on the Oslo Stock Exchange and NASDAQ in2000, and it remains Norway’s largest telecommunications group, with substantialinternational mobile operations.The purpose of this article is to examine through a case study of the merger of

Telia–Telenor why firms from apparently similar national cultures can fail to forma co-operative venture. The fundamental research question is: why did the Telia–Telenor merger fail? We are aware that a comprehensive investigation into thecause of failure of international mergers of such magnitude as Telia–Telenor wouldrequire multiple perspectives involving, for example, strategy, organization, corpor-ate finance, international business, negotiation, culture, history, diplomacy, and soforth. However, given the purpose of this study and to be able to generate crucialinsights, we have chosen to narrow down the scope of our research. Thus, thefocus of this article is to describe and analyze the Telia–Telenor merger processfrom a cross-cultural management perspective. Although culture and negotiationwill be discussed, cross-cultural management is the main theoretical base on whichthis study rests. By culture, we mean a unique lifestyle of people in a given society,which has been cultivated and shaped from history to date.

2. Methodology

Given the purpose and the type of research question of this study, a qualitativecase study research method based on in-depth personal interviews is considered tobe the most suitable research strategy (Yin, 1994). One of the greatest challengeswas to identify key negotiators from both the Swedish and Norwegian sides whowere ‘‘insiders’’ in the merger process and convince them of the value of thisresearch in order to secure their participation as informants. During April2003–February 2004, contacts were made and in-depth personal interviews wereconducted (each 1–2 h) with most of the respondents. The respondents includedindividuals such as: Telia’s former CEO Jan-Gke Kark (interviewed in Stockholmon 30 April 2003); Telenor’s former CEO Tormod Hermansen (Oslo, 14 October2003); Jan-Erik Brask, chief of Telia’s M&A department (Stockholm, 23


April 2003); Lars-Johan Cederlund, Deputy Assistant Under Secretary, the Swed-ish Ministry of Trade and Industry (interviewed twice; Stockholm, 8 May 2003, 17February 2004); Per Sanderud, Secretary at the Norwegian Ministry of Transportand Communications (Oslo, 13 October 2003); and Eva Hildrum, Director Generalat the Norwegian Ministry of Transport and Communications (14 October 2003).Besides the aforementioned interviews, contacts were made with a number of ‘‘insi-ders’’ who had insightful information about the merger process. We also went tothe Swedish Ministry of Trade and Industry (see under ‘‘Appendix A’’) to scruti-nize major contract documents concerning the Telia–Telenor merger negotiationduring 1997–1999.An interview guide was used during the interviews and most of the questions

were semi-structured. The interviewees were also asked to answer a prepared shortquestionnaire to get their perceptions of cultural differences and similaritiesbetween Sweden and Norway (see later Table 4). The interviews were processed byway of a pattern matching technique (Miles & Huberman, 1994; Yin, 1994). Someunclear findings led us to recheck original sources and in one instance to conduct asecond interview.In the rest of this article, we will discuss the Swedish vs. Norwegian cultures as

perceived in the existing cross-cultural management literature; the historical per-spective of the Swedish–Norway relations; and the course of events of the Telia–Telenor merger negotiation. We will also present our analysis of the Telia–Telenorcase and discuss its implications for both theory and practice.

3. Negotiation and national culture

Classic negotiation literature (e.g., Dupont, 1996; Fisher & Ury, 1981; Kennedy,2001) has offered many useful thoughts and models about how to study and con-duct negotiations. However, the fallacy of such approaches is that negotiationstend to be viewed as culture-free, deal-focused, and watertight legal packages thatexclude ‘‘soft factors’’ such as culture and people. For example, one widely readpiece of advice is to ‘‘separate the people from the problem’’ (Fisher & Ury, 1981).However, ‘‘the deal-focused approach is common only in a small part of theworld’’ (Gesteland, 2002: p. 19). More recently, negotiation scholars have startedto doubt this deal-focused approach to business negotiation, suggesting that‘‘negotiation strategy needs to be modified and expanded to take cultural differ-ences into account’’ (Brett, 2001: xix). A cross-cultural approach to business nego-tiations, both country-general (e.g., Brett, 2001) and country-specific (e.g., Ghauri& Fang, 2003; Graham & Sano, 2003), is gaining increasing attention. Brett (2001)argues that negotiation fundamentals (e.g., interests, priorities, and strategies, suchas BATNA) are, in effect, culturally based. Negotiation is conducted by peoplewho have values, feelings, sentiments and emotions, which often cannot be easilyseparated from the issues in question.Hofstede’s (1980) dimensional theory of culture is so far the most influential

source in the study of culture and management. International management behaviour


is shaped by respective national cultures, which can be classified in terms of four

cultural dimensions of national cultural variability, i.e., power distance, uncer-

tainty avoidance, individualism, and masculinity. Comparing Sweden with

Norway by using Hofstede’s dimensions, we find that both countries are

extremely similar. Sweden and Norway get the exact same score of 31 and the

same ranking 47/48 among 53 countries in power distance. Sweden scores 71,

ranking 10/11 whereas Norway scores 69, ranking 13 in individualism. Sweden

scores 29, a rank of 49/50, whereas Norway 50, ranking 38 in uncertainty

avoidance. Finally, both countries are the world’s most feminine cultures with

Sweden scoring 5, ranking 53 and Norway scoring 8, ranking 52. As such,

Sweden and Norway are identical by way of power distance, individualism, and

masculinity, and close to each other in uncertainty avoidance.Hofstede’s culture theory seems to be useful but incomplete when one is trying

to understand a more complex and subtle reality. Despite the ‘‘objective’’ cultural

similarity, Swedes and Norwegians do appear to have a strong sense of being

different. In this article, we suggest a historical perspective to understand cross-

cultural differences and similarities. History’s intricacies are often submerged or

even forgotten in the current preoccupation with national cultural dimensions and

indexes. History’s significance does not seem to have been adequately recognized in

negotiation research either, as suggested by Dupont (2003) and Lempereur (2003).

In the next section, we present a brief historical account of Sweden–Norway rela-

tions. In a sense, Sweden and Norway culturally belonged to the same family.

However, they had different positions in that family (the so-called ‘‘big brother vs.

little brother syndrome’’). Potential differences and even oppositions between

‘‘similar’’ or ‘‘identical’’ cultures can be triggered by events arousing historical

sentiments, feelings and emotions.

4. History

As discussed earlier, the cross-cultural approach to negotiation differs from the

classical approach by taking culture and people into account. However, the con-

temporary cross-cultural discourse seems to have been too concentrated on under-

standing human behaviour by way of cultural value dimensions, whereas

indigenous factors that underpin interactions of human behaviour are insufficiently

explored. One such factor is history. Historical sentiments, feelings and emotions

specific to certain cultures and accumulated over a long period of time may better

explain behaviour than cultural dimensions or indexes. Consequently to under-

stand relations between Sweden and Norway in general and the Telia–Telenor case

(which will be presented in the next section) in particular, it is relevant to study the

historical background concerning Sweden and Norway. The historical accounts in

the rest of this section are based on Lindqvist (2002), Carlsson and Rosen (1970),

and Lindkvist (1988).


4.1. The Sweden–Norway union (1814–1905)

As the largest country in Northern Europe, Sweden was the Nordic Empire inancient times. Historically, the Swedish empire occupied Finland, Norway andDenmark. Finland belonged to Sweden for 600 years until 1808 when Russia inva-ded the Finnish parts of the Swedish Empire. In 1809, Sweden and Russia signed apeace treaty in Stockholm, and Sweden was forced to give up Finland to Russia.In return, Russia would assist Sweden in winning the battle over Norway whichbelonged to Denmark at the time. Since almost all of Europe was occupied withthe ‘‘Napoleon war’’ at that time, it was easy for the Swedish army to enter Schles-wig and Holstein (now situated in Germany) in Denmark. In the same year, on 17May 1809 a Norwegian governmental single chamber parliament and constitutionwere formed in Oslo.The Swedish war with Denmark over Norway ended on 7 December 1813.

Sweden claimed the rights for all of Norway as well as the Danish parts of Green-land, Iceland and the Faeroe Islands. In return, Sweden gave parts of the SwedishPommern and Rugen to Denmark. Norway had by then belonged to Denmark for400 years, but that era was now at its end and Norway was once again a ‘‘prov-ince’’ of Sweden. The Swedish King in 1813 was Karl XIII who replaced GustavIV Adolf in 1809. A peace treaty to form the Sweden–Norway union with theSwedish King as the superior power was signed on 14 January 1814. The treatygave the Norwegian parliament more power and influence than any otherparliament and the Swedish King Karl XIII allowed the Norwegians to keep theirlaws, freedoms, rights and privileges.The newly created union overjoyed the Swedes but not the Norwegians who

refused to co-operate, although they preferred a union with the Swedes to the onewith the Danes. Theoretically, the union should have been idealistic; the two cultu-rally close people who spoke similar languages should have had reasons to becomeeven closer. However, the reversed occurred. The strong position of the Norwegianparliament in legislation eventually became a powerful weapon against Sweden’sattempts to unite the two countries. Throughout the 19th century, Norwegianhistory was characterized by struggles with Sweden for autonomy. Some 400 yearsunder the reign of Denmark since 1380 had turned Norway into a backwardDanish province without aristocracy and nobles. Moreover, the shipping and woodexport in Norway had its ‘‘golden age’’ during the late 18th and the beginning of19th century, so the Norwegian upper class consisted of ship owners and publicofficers. During the Napoleonic war, the Norwegian export decreased enormouslyand Norway entered a crises period. In 1809, about 3% of the Norwegian popu-lation died of starvation. Gustav III died and the French Marshall Bernadotte,later named Karl XIV Johan, became the Swedish King in 1818.At the turn of the 20th century, fierce discussions took place concerning the

future fate of Norway. Feelings of nationalism were increasingly shared by theNorwegian population. The Norwegian poet Bjornson wrote: ‘‘The union thatinfects us, we hate and condemn it’’ (in Lindkvist, 1988: p. 15). Carlsson andRosen (1970: p. 449) described:


The Norwegian people’s increased national feelings and general expansion inevi-tably lead to increased aversion to a union between the two countries, especiallybecause Sweden always had had precedence, no matter how many advantageswere offered Norway in the name of equality.

The ‘‘riots’’ increased and the Swedish government considered retreat. The firstNorwegian coalition government was formed around 1895, and its referendumabout Norway’s independence turned out to be positive.Nevertheless, Sweden refused to let Norway go; a war was about to break out.

The two armies were almost face-to-face, no one wanted to give in since the rivalrybetween the two nations were obvious. Russia and France had to step in and claimthe rights of the Norwegians to freedom by saying that ‘‘the great power countrieswould highly disapprove’’ if Sweden would not give up Norway. The Swedish KingOskar became the King of Sweden and Norway in 1872. The Stortinget (TheNorwegian Parliament) suspended him as the Norwegian King on 7 June 1905 andon 26 October the same year he acknowledged the disbandment of the unionbetween Sweden and Norway.During the same time period, the legendary Swede Alfred Nobel died (1896) and

in his will he wanted the Nobel Peace Prize to be handled in Norway byNorwegians whereas all other prizes to be handled in Sweden by Swedes. Hismotives were never clearly stated, but there are at least two speculations as to hisreasoning. One is that Nobel wanted to see an end to conflicts that threatenedthe union; the other is that he respected the Norwegian parliament for theirinternational efforts and success.Does the history of Sweden–Norway rivalry have any influence on modern busi-

ness ventures between the two nations? Historical events, sentiments, and emotionscan cause variations to business relationships between nations which are commonlyperceived as culturally similar or identical. To illustrate this point, we present andanalyze the Telia–Telenor merger negotiation process. In many countries, tele-communications firms have been heralds of nationalistic feelings. This phenom-enon may be most salient in Scandinavia/Northern Europe where nations aresmall but national telecom sectors are disproportionately large; Telia and Telenorhave been an ‘‘object’’ of national pride. A merger involving such two ‘‘objects’’would necessarily involve the ‘‘replay’’ of historical events related to the national-istic feelings of the Norwegians and the traditional dominance of the Swedes.

5. The Telia–Telenor merger

5.1. Actors and interests

Four actors were involved in the Telia–Telenor merger negotiation; on the onehand the two companies, i.e., Telia and Telenor; on the other hand, their respectivegovernments, i.e., the Norwegian Ministry of Transport and Communications, vs.the Swedish Ministry of Trade and Industry. Each ministry had their own


negotiation team; in Norway the responsible persons were Mr. Per Sanderud andMs. Eva Hildrum; in Sweden Mr. Dag Detter and Mr. Lars-Johan Cederlund.The purpose of the merger was to create a Nordic-based growth-oriented inter-

national telecommunications and IT corporation. Synergy effects and the possi-bility to become a market dominant in Northern Europe and the Baltic regionswere common interests of all the parties. The Telia–Telenor merger negotiationoccurred in the age of globalization and rapid privatization and deregulation ofglobal telecom markets with ever increased competition. Both the Swedish andNorwegian governments were feeling the need to build up a strong Nordic tele-communications group to meet the would-be competition coming from outsideNordic and Baltic regions. Through the merger a number of new possibilities wereto be created, including: development of customer relations through first class ser-vices based on new technology; expansion of business in growth areas to leading orglobal positions; attraction and maintenance of key competence through attractivecarrier ways; an increase in the capacity of the established operations througheconomies of scale and realization of synergy.At the time of the merger negotiation initiated in 1997, Telenor was the leading

telephone and IT supplier in Norway and the third largest actor in Europe insatellite communication and among the 10 largest in the mobile area in Europe.Telenor was fully owned by the Norwegian state and had 20,848 employees and aturnover of 25.5 billion Norwegian crowns. In 1997, Telenor AS had one of theworld’s most modern and advanced telephone nets and the goal was to be able toserve the next century’s expectations of the ‘‘electronic highway’’. The companyhad a unique position related to being an ordinary telecom operator since thecompany had heavily invested in the IT-area. At the end of 1997, Telenor wasrepresented in more than 40 countries and had operations with a large number oftelephone services. The company was engaged in a large number of promisingprospects internationally mainly within mobile, satellite communication andcatalogues.The deregulation on telephone markets in Norway took place on 1 January 1998

and the deregulation started a competitive market in Norway. Still, Telenor wasthe only company that could offer full service within telephony, data communi-cation, mobile, internet, IT and satellite communication. The company had anaggressive international strategy with goals to become among the three largest onsatellite communication, among the five largest in catalogue area, among the fivelargest in internet, among the 10 largest in mobile and among the 10 largest ininternational telephony in Europe. Telenor was organized towards markets with arather flat structure.At the time of merger, Telia was the leading telecommunication company in the

Nordic and Baltic region. The company had a leading position overall in Swedenand was expanding in neighbouring markets. Telia’s first foreign operation was setup in Denmark in 1994. In the Baltic States, the strategy was to invest in incum-bent operators and the first investment was made in Estonia in 1991. At the time ofthe merger, the company was operating in all Nordic and Baltic states. Telia hadtwo expanding strategies, a geographic dimension and a product


dimension. The company’s goals were to be the leading Nordic internet andcommunications company, to lead developments in Sweden for broadband and IP-services fixed as well as mobile, to be the leading mobile operator in the Nordicand Baltic regions, to be at the forefront of mobile internet in Europe and to be atthe forefront of the world carrier market.In 1998, the telecom markets within the European community, such as public

fixed telephony, were deregulated. Since the Swedish market had been deregulatedfor several years and Telia was used to competition the company had a competitiveposition. Telia had gone through a transformation from a single integrated oper-ation to independent business areas and decentralization and management byobjectives. Each business area had total responsibility of its own and the areasbusiness and people functioned as service providers.At the time of the merger, there were some differences in the size of the two

companies and the actual size ratio was more one of 63/37 in favour of Teliarather than a 60/40 relationship. On the other hand, Telenor had better marginsand a larger growth potential (see Table 1).Telia’s revenue of SEK 51,240 billion from their various business areas was

dominated by the fixed area with a percentage of 59%. Telenor’s revenue of SEK29,243 billion was also dominated by their fixed business area. At the time of themerger, the Swedish market was more liberalized than the Norwegian and the com-petitive situation in Sweden was much higher than in Norway. Yet, Telia was stillthe market dominant in Sweden with market shares of 56% in mobile, 95% in fixedand 25% in internet. The lack of competition in Norway made Telenor huge domi-nants on all their markets in Norway. A market share of 75% in mobile, 99.55% infixed and 72% in internet made Telenor practically still a monopoly. Both Teliaand Telenor had at the time of merger a well-divested ownership structure. Telia’sinternal assets were valued to a total of 2.4–2.7 billion USD, while Telenor’s inter-nal assets were valued to a total of 1.8–2.3 billion USD (Goldman Sachs Inter-national, 1999).Telia-Telenor’s ambition was to expand internationally to become a leading

actor in northern Europe and globally within areas where the new company coulddevelop unique advantages of competence and competition. Plans of action forevery business area were to be created for the next 18 months. The ‘‘collection’’ ofcost synergies was based on business valuations (Table 2).

Table 1

Key statistics Telia vs. Telenor at the time of the merger in 1998.

T
elia Telenor
Revenues (SEK billions) 5
1,240 29,243
EBITDA (SEK billions) 1
4,918 8624
Access lines (millions) 6
.1 2.3
Mobile subscribers (millions) 2
.6 1.6
Total employees 3
1,022 20,848
Source: Goldman Sachs International (1999).


The new company was expected to increase the profitability in the Nordic region

through changes in efficiency and by using advantages of competence; distribution

of communication services, research and development of the fixed net based on

future technologies, an increasing penetration of current markets, development of

new services and a geographical expansion. The large growth areas were mobile

communication, internet, cable-TV, satellite, carrier and catalogues. The new com-

pany would also have made international portfolio investments mainly in the Baltic

area with a focus on ownership and competence transmission. To achieve this, the

principles for the merger process were: a combination of equal partners by using

the best of Telia and Telenor, active and visible management, and focus on syner-

gies and value creating, and activity concerning the information work from the

start. The organization was going to be orientated towards markets. Fig. 1 shows

Telia–Telenor’s basic organizational structure.

5.2. Process

Based on our interviews, what follows is a description of the process of Telia–

Telenor merger negotiation. Table 3 helps the reader capture the dynamics of the

merger negotiation process by outlining the course of events.Fig. 2 provides a visual presentation of the course of events, showing the devel-

opment of the degree of interest from the negotiating parties.

5.3. Contentious issues

The Telia–Telenor merger negotiation deadlocked a couple of times on conten-

tious issues such as the composition of the board, division of power, location of

the mobile telephone head office, among other things. But the most contentious of

all was where to put Telia–Telenor’s mobile head office, in Sweden (Stockholm) or

Norway (Oslo)? In initial negotiations, the Norwegians perceived that they were

promised by the Swedish side to get the mobile head office (see also Fig. 1). In the

initial agreement, the mobile head office location was said to be decided on com-

mercial grounds. The Norwegians were thinking it was a promise. So when the

Swedes later came up with a different standpoint, the Norwegians felt they were

‘‘cheated’’ by the Swedes. We will analyze this issue in the next section.

Table 2

Synergies of the proposed Telia–Telenor company.

Revenues: present value SEK 15–26 billions

Revenues: revenues of potential cash flow SEK 1.5–2.5 billions

Costs: present value SEK 30–40 billions

Costs: cash flow effect SEK 3.0–4.1 billions

Source: our own interviews and Goldman Sachs International (1999).


6. Analysis

Studying the interview notes and documents concerning the Telia–Telenor affair,we are able to analyze the case in terms of a number of themes, which are pre-sented in this section.

6.1. Trust

Looking back at the Telia–Telenor merger, we have found that the pre-negoti-ation between Lars Berg (Telia’s CEO) and Tormod Hermansen (Telenor’s CEO)was going pretty smoothly given their strong personal trust. At this point, bothorganizations showed strong interests and confidence in the merger, which wasintended to be the largest telecommunications group in the Nordic and Balticregions. Telia took the initiative to contact Telenor who was also interested in theidea.The Norwegians seemed to be more eager than the Swedes to conclude the

merger both at the corporate and governmental level. At the government level, theNorwegians seemed to want to see the merger take place but not at too high aprice. At the corporate level, the enthusiasm was evident. In the words ofHermansen: ‘‘Throughout the merger Telenor saw large possibilities of benefits;therefore our enthusiasm was huge.’’Nevertheless, with the resignation of Telia’s CEO, the initial personal chemistry

and confidence vanished between Telia and Telenor and the negotiation bumpedinto one problem after another. In the words of one of the senior executives on theSwedish team: ‘‘When Berg left and Kark entered the scene he and Hermansenbecame ‘lame ducks’’’.

Fig. 1. The organizational structure of the proposed Telia–Telenor. Source: Appendix 3, Combination

Agreement, 30 March 1999.


Table 3

The course of events of the Telia–Telenor merger negotiation

Course of events

September 1997
Mr. Lars Berg, the then Managing Director of Telia,
contacted his friend Mr. Tormod Hermansen, the then

Managing Director of Telenor, to propose co-operation.

Berg had received information about the planned merger

between Tele Danmark (Denmark) and Ameritech

(USA). Telenor had earlier co-operated with Tele

Danmark and Berg realized that a merge with Telenor

would create the largest teleoperator in the Nordic

region.

October 1997
Mr. Anders Sundstrom, the then Swedish Minister of
Trade and Industry, started to search for possible part-

ner for Telia.

November 1997–January 1998
Political/government negotiations for co-operation
between the two countries took place.

21 January 1998
The Norwegian government called off the negotiations.
Norska Stortinget (The Norwegian Parliament) forced

the government to maintain the negotiation the day

after.

20 February 1998
Anders Sundstrom announced that the deal was off. This
came as a surprise since the Swedish Prime Minister Mr.

Goran Persson as late as 23 January 1998 was positive

after discussions with his Norwegian counterpart Mr.

Kjell Magne Bondevik.

March 1998
Berg asked Hermansen if they could resume the negoti-
ation without the involvement of the politicians. Both

Berg and Hermansen felt that the merger would be a

win-win deal for both parties. To the public, they

announced that a merger was not to take place.

Summer 1998
Berg and Hermansen held secret meetings a couple of
times during the summer of 1998. In the beginning

nobody knew of their meetings, not even their collea-

gues. As the conversations went on, they decided to

involve their respective chairman in the meetings to get a

wider perspective.

9 November 1998
Berg and Hermansen informed Mr. Bjorn Rosengren
who replaced Sundstrom as the Swedish Minister of

Trade and Industry, about their secret negotiations.

11 November 1998
Rosengren talked to his Norwegian counterpart Odd
Einar Dorum and they resumed the political negotia-

tions.

20 November 1998
Berg resigned suddenly probably as a result of the lack
of trust from the Swedish side since he had negotiated

with Hermansen in secret, but mostly due to the tempt-

ing offer he had received from another firm.


Table 3 (continued )

Course of events

20 January 1999 T
he ‘‘agreement of intention’’ was signed between the
two countries at the political level. The Swedish and

Norwegian governments announced the intended merger

between Telia and Telenor.

The new agreement replaced all of the earlier agreements

and included several issues (Agreement of Intention, 20

January 1999):

. An ownership agreement in favour of the Swedish sideof a 60/40 relation, called the ‘‘Relation Agreement’’.

. There was to be an IPO as soon as the merger wascomplete, otherwise latest during the year 2000.

. A parity offer for the public that offered 33.2% of thestock in the beginning.

. The ‘‘Articles of association’’ stated that the boardwas to be compounded of six members, three from

Sweden and three from Norway, appointed by respect-

ive government.

. The first Managing Director of the proposed Telia–Telenor was to be Norwegian and the Deputy Manag-

ing Director Swedish.

. The head office was to be located in Sweden and aninternational centre was to be located in Norway.

. The stockholder agreement was to subject to theSwedish regulations.

30 March 1999 T
he two governments presented a new ‘‘combination
agreement’’. The extension of the agreement of intention

(Combination agreement, 30 March 1999):

. The board of the new company was to be com-pounded by eight members and the chairman was to

be Mr. Jan Stenberg, the then Chairman of Telia. The

Swedish government was to appoint another three

members and the Norwegian government the remain-

ing four.

. Hermansen was to be Managing Director. Mr.Jan-Gke Kark and Mr. Stig-Arne Larsson (Telia) were

to be Deputy Managing Directors.

21 September 1999 T
he Norwegians announced that they would call the deal
off if Telia–Telenor’s new chairman would not be

Norwegian.

24 September 1999 R
osengren was talking to Swedish reporters saying that
‘‘Norway is the last Soviet state. They are so extremely

nationalistic. It’s politics all the time’’. Yet he did not

realize that a TV camera was still on. This insulting

statement became the most sensational news in the

Swedish and Norwegian media the next following day.

Rosengren was later forced to apologize again.

(continued on next page)


Table 3 (continued )

Course of events

13 October 1999
EU approved the merger ‘‘making this deal the first
between two former state telephony monopolies in the

deregulated European telecommunications market’’. To

meet demands from EU, both companies would have

had to sell their extensive cable networks and open their

respective national markets to larger competition. This

hit Telia much harder than Telenor since Telia had 1.3

million subscribers and Telenor had 275.000 in their

extensive cable networks.

17 October 1999
A final agreement was about to be signed but the Nor-
wegians did not show up. Instead they went to the Swed-

ish Ministry of Trade and Industry and maybe this was

the beginning of the end to the whole affair.

18 October 1999
The final agreement was signed. This agreement was an
addition to the last agreement and included some chan-

ges mainly concerning the organizational structure

(Additions to agreement of combination, 18 October

1999):

. Since Stenberg no longer was involved, Kark was tobe Chairman of the board.

. All the managerial posts were appointed. Hermansenwas going to be Managing Director, Stig-Arne Lars-

son and Ms. Marianne Nivert (from Telia) Deputy

Managing Directors.

. Otherwise the senior management was not changedand the posts were to be held by Torstein Moland

(Telenor) as Financial Director, Marianne Nivert

managing net, Arne Johansen (Telenor) managing

mobile and Lars Harenstam (Telia) managing person-

nel (Combination Agreement, Appendix 7, 30 March

1999).

8 December 1999
The board meeting ended in a conflict. The Norwegians
had to make a decision about a proposal from the Swed-

ish government concerning the location of the mobile

head office and the managerial composition. They agreed

to replace part of the management but refused to accept

the location in Stockholm as the mobile telephone head

office of Telia–Telenor.

9 December 1999
Hermansen announced that he refused to go through
with the board’s decision. In irritation, he also kicked a

journalist.

10 December 1999
Telias two Vice Presidents, Marianne Nivert and Stig-
Arne Larsson, along with Jan-Gke Kark demanded Her-

mansen’s resignation. They also asked the Swedish and

Norwegian governments to solve the conflict.

16 December 1999
The Telia–Telenor deal became a definite failure.


The Norwegians might not have considered some of the key Swedish negotiatorswere as trustworthy as Lars Berg. It also appeared that the appointment of Karkwas not fully accepted within Telia’s organization and there existed internal strife.The level of trust between individuals (in this case between the two CEOs) seemedto be the crucial barometer indicating the development of the Telia–Telenor mergernegotiation.

6.2. Perceived cultural similarities

In the existing cross-cultural management literature, Sweden and Norway areranked as ‘‘similar’’ cultures; the two national cultures are identical with each otherin power distance, individualism, and masculinity, and are similar to each other inuncertainty avoidance (e.g., Hofstede, 1980, 1991, 2001). One of the intervieweedescribed:

Both Swedes and Norwegians are innovative and international and they arepeace lovers who share the same respect for the individual. There is a highdegree of education in both countries, and their respective management leader-ship is known worldwide.

The Swedish and Norwegian languages are very similar to each other. Actually,both Swedish and Norwegian were used during the negotiation process and nointerpreter was needed. When it comes to corporate culture, Telia and Telenorseemed to share commonalities, as Lars-Johan Cederlund put it:

Fig. 2. The Telia–Telenor merger negotiation: course of events.


Both companies shared their view on the markets and their daily operations.

They also had similar technical platforms and pretty the same corporate culture.

How could the merger between such two similar national and corporate cultures

fail? One reason that we believe to be relevant is the lack of preparation on both

sides due to the perceived similarities between the two countries in national culture,

corporate culture, and language.It seems that differences also exist between apparently similar cultures like

Sweden/Swedes and Norway/Norwegians. We have noted a few interviewees’

after-event corroboration of cultural differences, however small it might be,

between the Swedes and Norwegians. One top member on the Swedish team said:

‘‘The Norwegians are more spontaneous and impulsive.’’ He also described the

Norwegians as ‘‘Nordic Spaniards’’. This seems to be in line with Hofstede’s

theory in which Norway is considered to be more uncertainty avoiding than

Sweden, suggesting that Norwegians could be more ‘‘emotional’’ and ‘‘aggressive’’

in the negotiations. According to another interviewee, the Swedes may still perceive

the Norwegians as ‘‘the cousin from the countryside. . . Nice, cheerful, sporty, but a

bit [too] good’’ and the Norwegians on the other hand regarded the Swedes as

‘‘bully, cocky, and overdriven [and] socially polished’’.The difference between Norway and Sweden also concerns trade unions. In

Sweden, trade unions have had a very strong position in relation to management,

probably more powerful than trade unions in Norway. Hermansen had not

anticipated such a strong resistance from the Swedish trade union and admitted:

There were a lot of conflicts between me and one of the Swedish Trade unions;

it was shown afterwards that they had started a medial campaign against me.

Table 4 presents how Swedish and Norwegians (interviewees) viewed each other

in connection with the merger negotiation process. It is worth noticing that both

Table 4

Are Norway and Sweden different/similar?

The Swedish view T
he Norwegian view
Structure of organizations
Large difference D ifference
Norwegian and Swedish way of working
Difference D ifference
Swedish and Norwegian corporate culture
Large difference S mall difference
Companies underestimate the cultural differences

between Sweden and Norway

A lot A
little
Differences between a Norwegian and a Swedish

negotiator

Large M
edium
Cultural differences between Norway and Sweden
Large L arge
Cultural similarities between Norway and Sweden
Large M edium–large
Differences between the languages causing problems
Small N one
Differences in communication between the Swedes

and the Norwegians

Small S
mall
Source: based on the interviewees’ answers.


sides maintained that the cultural differences between Norway and Sweden are

‘‘large’’. Quite paradoxically, the cultural similarities between the two nations are

also perceived to be ‘‘large’’ and ‘‘medium-large’’.

6.3. The ‘‘big brother vs. little brother syndrome’’

An in-depth look at the entire negotiation process reveals that the failure was adirect outcome of the lack of agreement on two conflicting issues: the interpret-

ation of the ownership agreement and whether the headquarters of the merged

Telia–Telenor’s mobile telephones business should be located in Norway or

Sweden. The Swedes wanted to have the headquarters situated in Stockholm while

the Norwegians in Oslo. Neither party gave up its position. How could such

professional and internationally well-known firms as Telia and Telenor fail to

reach an agreement on this issue? We have found that a number of incidents

occurred during the negotiation process that aroused a strong nationalistic

sentiment on the Norwegian side, which pulled the merger back into the shadow of

the history of the Sweden–Norway ‘‘rivalry’’.In the initial negotiations, the Norwegians believed they had a promise from the

Swedish side to get the mobile head office. When the Swedes later reneged the

Norwegians were felt betrayed. This may be seen, on the part of the Swedish side,

as a symptom of the ‘‘big brother complex’’; the Swedes did not seem to view the

initial agreement to be final and binding in this particular negotiation with the

Norwegians.Sweden represented power and supremacy in the Nordic history and the Swedes

behaved as a ‘‘big brother’’ in the Sweden–Norway union (1814–1905), a memory

that many Norwegians still keep alive to this date. Throughout the history of

the Sweden–Norway union, there were ‘‘acrimonious’’ feelings between theNorwegians and Swedes. There were two separate political systems with Sweden as

the authoritarian kingdom, i.e., the two countries were under the reign of one and

the same King, the Swedish King in Stockholm, Sweden.Historically and also nowadays Denmark and Norway seem to have co-operated

better; they seem to share quite the same view though different in character

and both are old shipping and trading nations. Co-operation between Finns

and Swedes seem to function better than Norwegians and Swedes. Finns and

Swedes share the same unitary production and both countries worship technical

engineering.The ‘‘big brother vs. little brother syndrome’’ dating back to the Sweden–

Norway history seems to have shadowed much of the Telia–Telenor merger negoti-

ation process. The Swedes appeared to consider the negotiation to be a pretty

quick process due to their strong influence in the mobile telephony. Home to

Ericsson and many other new IT start-ups, Sweden was praised by the Newsweek

magazine as the IT centre of Europe with Stockholm as its ‘‘Wireless Valley’’

(Brownell, 2000). For Telia, placing Telia–Telenor’s mobile head office in

Stockholm was a natural and rational necessity.


However, it turned out that in a range of conflicting issues, the Norwegians didnot give in, and they insisted to the end that the mobile head office should be loca-ted in Oslo. Telenor was the national pride of Norway; Norwegians were veryproud of Telenor’s successful expansion of business in the Baltic region. Telenor’sstrategic intent was to develop its competence in mobile telephony operation. Forthe Norwegians to let go too much especially on the mobile head office issueseemed impossible. According to one informant in this research:

In the merger, the Swedes did not seem to understand what Norwegiannationalism means at the corporate level, when it comes to a national pride likeTelenor. This is not a company like someone else but a unique company in Nor-way that plays an important role in Norwegian corporate and national identity.

The Norwegians seemed to set out to counter-balance the predominant influencefrom Stockholm. Hermansen noted ‘‘even today the western part of Sweden has avery good contact and relation with Norway, the city of Gothenburg on the westcoast is very much towards west [of Scandinavia], while Stockholm is more focusedon the southern and eastern part [of Scandinavia]’’. This perception of power affec-ted the atmosphere of the negotiation, since the Swedish political power base hasbeen located in Stockholm.The resistance from the Norwegian side certainly irritated the Swedes. On two

occasions, Mr. Bjorn Rosengren, the then Swedish Minister of Trade and Industry,made controversial public statements, which made not only the Norwegian nego-tiators but also the Norwegian government and many ordinary Norwegians feeldeeply insulted. These two particularistic events had deteriorated the already fra-gile relations between the two parties in the middle of the merger negotiation.Within Telia, there seemed to be differing opinions about the direction of the

negotiation. The end result is that whilst Berg and later Kark tried to solve thepotential conflicting issues in the negotiations, Stig-Arne Larsson (then VicePresident of Telia) went on to negotiate with Sonera to find a way out in casethe negotiation with Telenor would fail.Fundamental business political issues, such as the composition of the board and

the location of the mobile head office became issues that, as time went by, turnedout to be impossible to solve. The two issues were sent back and forth in negotia-tions at two levels: between the board members of the new company (Telia–Telenor) and between the Swedish and Norwegian politicians. Finally, the politi-cians left the issues to the board but the composition of the votes made it imposs-ible to reach an agreement.We have noticed that the issue concerning the mobile head office seems to be a

subterfuge to close the negotiations. In the end, the two sides and four parties wereall tired of the situation and realized that they were never going to solve the keycontentious issues with consensus. The merger was declared dissolved on 16December 1999.During the entire merger negotiation process, national newspapers and television

stations in both countries were busy covering news concerning this ‘‘unhappy’’


ongoing merger, agitating the love and hate sentiments and emotions toward eachcountry. According to Lars-Johan Cederlund ‘‘the Norwegians handled thequestions more openly which created problems for the Swedes since the Norwegianmedia sometimes seemed to receive information before the Swedes did’’.

7. Conclusions

Sweden and Norway are often called the world’s number one and number two‘‘feminine’’ cultures, respectively (Hofstede, 1980, 1991, 2001). Negotiation betweenfeminine cultures is believed to be much easier than that between masculine ones(Hofstede, 1989). However, the Telia–Telenor merger negotiation did not seem tobe easy and ended up as one of the largest unsuccessful projects in modern Nordichistory.In this article, we described the process of the Telia–Telenor merger negotiation.

We identified three main reasons explaining why the merger failed. Firstly, therewas a lack of personal trust between the two main negotiating parties (Telia vs.Telenor) in the middle and later phase of the negotiation. Secondly, both parties(especially the Swedish) had underestimated the potential difficulties (e.g., thestrong nationalistic sentiment on the Norwegian side) and cultural differences.Thirdly, The Telia–Telenor negotiation seemed to have mirrored the history ofSweden–Norway Union (1814–1905) in which the Swedish–Norwegian relationsmight be best illustrated as the ‘‘big brother vs. little brother’’ syndrome.During the process of this investigation, we asked ourselves: what if Lars Berg

had not resigned? What if Bjorn Rosengren had not ‘‘joked’’ about Norway/Norwegians? What if a creative agreement could have been reached about thelocation of the mobile head office? As for the last question, why not maintain twohead offices as suggested in Shell and Unilever (Hofstede, 2001: p. 445) or just keeprotating between Sweden and Norway or even ‘‘roaming’’ into a third country? Webelieve that had the parties, especially the Swedish one, shown more tolerance andrespect to the other party, the required level of confidence would have beenreached and the merger would have been saved.Much attention has been given to cultural differences and their impact on inter-

nationalization and cross-national management behaviour (e.g., Hofstede, 1980,1991, 2001; Kogut & Singh, 1988). While this line of thought is important and war-rants further attention, it is also important to research cultural similarities. Wehave found that cultural differences exist even between cultures (see also Table 4)that are viewed as ‘‘identical’’ or ‘‘similar’’ in the existing cross-cultural manage-ment literature. We need to fine-tune behavioural differences between similar cul-tures and get prepared for them. Fenwick, Edwards, and Buckley (2003) show thatperceived similarity leads managers to underestimate actual cultural and subculturaldifferences. Our study supports this argument. The lack of preparation given toperceived similarities between the two countries, with reference to culture, society,and language, provides an explanation, though not the most decisive one, for thefailure of Telia–Telenor.


More significantly, the failure of the Telia–Telenor merger negotiation seems to

suggest that purely relying on cross-cultural dimensions/indexes cannot account

for the failure. Rather, the impact of history, i.e., the strong nationalistic senti-

ments and emotions resulting from the old ‘‘big brother vs. little brother syn-

drome’’, cost the success of the Telia–Telenor merger negotiation. History should

not have to be the negative baggage for the future. But if not coped with well,

history can be a formidable obstacle and can pose serious challenges to commercial

relationships, as the Telia–Telenor case has implied. The capability of human

resources (managers’ ideas, emotions, diplomatic capacities, and strategic visions)

to cope with unsolicited history-linked contingencies and sentiments is crucial for

the success of cross-cultural merger projects.So far, the cross-cultural management literature has evolved around the notion

of national value dimensions and corporate management practices (e.g., Hofstede,

1980, 1991, 2001). In the studies of M&A, attention is directed largely to the

impact of national and organizational cultural differences (e.g., Buono et al., 2002;

Morosini, Shane, & Singh, 2002), whereas the impact of history and the related

feelings, sentiments, and emotions on the process and outcome of cross-cultural

management activities have been scantily researched. Atmosphere, which is defined

as the perceived ‘‘milieu’’ around the interaction, and how the parties regard each

other’s behaviour, and the properties of the negotiation process, plays a vital role

in cross-cultural business negotiations (Ghauri, 2003). This article suggests that his-

tory can have an important bearing on shaping the atmosphere at the negotiation

table. History, if not handled well, can fatally damage cross-cultural business ven-

tures. Saying this, we do not mean to isolate culture from history in theory build-

ing but rather suggest that we need to penetrate beneath widely accepted cultural

dimensions to capture hidden meanings of culture.In line with Dupont (2003) and Lempereur (2003), we believe history is an area

that calls for more research both from the point of view of cross-cultural manage-

ment in general and negotiation in particular. This study lends support to the

emerging interest in recent years towards affect and emotion in negotiation

(e.g., Adler, Rosen, & Silverstein, 1998; Hegtvedt & Killian, 1999; Kumar, 1997;

Ogilvie & Carsky, 2002) which can be further extended to the cross-cultural busi-

ness negotiation environment. Our final words to managers who are conducting

business in ‘‘similar’’ cultures: it may be wise to think more in terms of historical

emotions than cultural indexes!

Acknowledgements

The authors would like to thank the Editor, Editorial Assistant, the two blind

reviewers, and Anton Kriz, PhD, for their valuable comments on an earlier version

of this article.


Appendix A. Sources concerning the contract of Telia–Telenor negotiation

Additions to Agreement of Combination, 18 October 1999, N1999/3625/SA.
Agreement of Intention, 20 January 1999, N1999/3625/SA. Combination Agreement, 30 March 1999, N1999/3625/SA. Combination Agreement, Appendix 3, 30 March 1999, N1999/3625/SA. Combination Agreement, Appendix 7, 30 March 1999, N1999/3625/SA. Principles of Integration of the merger between Telia and Telenor, CombinationAgreement, Appendix 3A, 30 March 1999, N1999/3625/SA.
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