Buyout offers by AOL and Arris Group ( ARRS) for two Scandinavian technology companies earlier this week are fueling a wave of takeover speculation and a rally in the region.

On Monday, Time Warner ( TWX) unit AOL offered $900 million for Swedish online marketing company TradeDoubler. Separately, Arris announced the $1.2 billion acquisition of Norway-based Tandberg television, a provider of infrastructure products for digital TV.

The deals echo previous acquisitions of Nordic tech companies by large U.S. players -- most notably eBay's ( EBAY) $2.6 billion acquisition of Swedish Internet telephone company Skype in September 2005 -- and have spurred talk of potential bidding wars among other tech giants.

Although AOL's offer was approved by TradeDoubler's board, the majority shareholder, Alecta pension fund, rejected the deal. The snub by Alecta, which owns a 10.01% stake, is expected to attract higher offers by rival firms, possibly Google ( GOOG), Yahoo! ( YHOO) or Value Click ( VCLK), which are interested in the high growth of European ad revenue from search.

Although AOL announced Tuesday it would not raise its bid, it will probably come in with a higher offer, says Mikael Laseen, an equity research analyst for Kaupthing AS, Iceland's largest bank.

"We heard from TradeDoubler in December that they were talking to several buyers, one of which was obviously AOL" says Laseen. "The statement from AOL that they are reluctant to raise the bid is not unexpected; I think they are likely to raise the bid but it's difficult to say by how much."

Alecta confirms that it is in talks with other U.S. companies looking to offer more. "We've made no official statement today but our head of equities says the obvious next step is to talk to other interested parties," says Johan Andersen, press officer for the pension fund.

Laseen says AOL might offer up 5% to 10% more than its initial bid, while Alecta says it is premature to disclose what valuations it seeks for its stake in the search firm. TradeDoubler is a high-growth company and Alecta plans to speak to other shareholders at the company to arrive at a consensus.

On Wall Street, the deal was seen as refuting rumors Time Warner was looking to spin off AOL. But Laseen says that if AOL were to buy TradeDoubler, it would actually be much easier for Time Warner to sell the unit because of the additional top-line growth TradeDoubler would add. Advertising sales growth from online search is around 50% to 60% a year in Europe vs. just 20% in the U.S., according to Kaupthing. Global ad spend for Internet search last year was $14 billion, according to Optimedia. Of that, it's estimated that $10 billion comes from the U.S. while $3 billion comes from Europe.

Meanwhile, Arris agreed to pay 96 Swedish kronor a share for Tandberg Television, valuing the company at $1.2 billion. Shares in Tandberg on the Oslo Bors, where the company is listed, closed at 98.3 Swedish kronor today, up 0.31%.

Despite the friendly terms of the sale, other large U.S. bidders are likely to try to top the offer, says Albert Collett, who manages $200 million for ABN Amro in Norway.

"Anything can happen now," says Collett. "Even though Tandberg's board has committed to this deal, we think others will try and come to take this company now." He sees Alcatel ( ALU) and Siemens ( SI) as the most likely potential bidders.

The announcement by AOL sent shares of other Scandinavian technology companies soaring as speculation increased about more possible acquisitions. Shares in Sweden-based Axis, a provider of professional network video products, have soared 7.5% to 100.25 Swedish kronor since Monday on speculation that the company will be acquired by Cisco ( CSCO).

Swedish semiconductor Micronic Laser Systems, which counts Intel ( INTC) and Samsung as partners, is another potential takeover target, according to Laseen. "It has a very strong product portfolio and with the share price down recently" due to adverse market conditions, "this is a good time for another tech giant to pick up the company and make a bid," he says.

Neither Laseen nor Collett have positions in these U.S. companies or in Axis or Micronic Laser Systems.

This latest round of interest in Nordic technology comes as no surprise to analysts and fund managers in the region, who have viewed these small technology companies as undervalued for a long time. The high price of oil has put the spotlight on oil and shipping companies over the last year, leaving many of these smaller tech players, which reported strong earnings in 2006, largely unnoticed.

The fact these companies have not issued ADRs also means they are largely ignored by international shareholders, adds Collett. Currently there are no ETFs in Nordic technology either. But investors who want to pick up some of these companies will not find it difficult, especially if they are investing more than $10,000. "The fees that U.S. brokers take for purchasing Nordic equities are tiny," says Collett.

Collett holds big positions in two Norwegian technology companies he believes may be potential takeover targets in the future: Vizrt, which makes digital streaming devices for television channels, and Opera Software, which makes Web browsers for cell phones.

Opera has already been busy making deals with U.S. tech companies. On Friday, Opera announced it was entering into an exclusive partnership with Yahoo!; the search engine will be the exclusive provider for search on the Opera Mini and Opera Mobile browsers. So far, more than 1 billion pages have been surfed using the browsers, says the company, which is also expected to strike another exclusive deal with Apple's ( AAPL) iPhone later this year.

"The tech proposition in the Nordic region is so attractive to U.S. companies principally because here companies design and agree on a standard very quickly. If you can decide on platform, whatever you're producing is very easy to roll out," says Collett.
At the time of publication, Daniel M. Harrison had no positions in stocks mentioned.

Harrison is a business journalist specializing in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at www.theglobalperspective.biz. He lives in New York.

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