Hopes of a "white knight" rescue for Esat have virtually been dashed following Telenor's decision to raise its bid to $85 (€108) a share, from $72.

Esat shares were still trading above the offer price last night, at around $90 at one stage. Telenor's move was seen as preempting any possible counteroffer acceptable to Esat.

It is understood that the Esat board meets today to consider the offer, which values it at $1.9 billion (€1.88 billion), but a rejection is expected. It follows a meeting between Esat's financial advisers and their Telenor counterparts in London on Tuesday.

Telenor said it had met Esat's advisers to seek "a meeting between Telenor and Esat to negotiate a recommended transaction". It is understood this meeting, at the offices of Chase Manhattan, lasted around 30 minutes. Esat's financial advisers then contacted senior Esat directors and "subsequently indicated that Esat saw no basis for discussing a recommended offer around the level of the increased offer".

Mr Terje Thon, senior executive vice-president, Telenor, said it was a very good offer. "It is an outstanding price for the business we are talking about," he said.

Esat Telecom Group and Telenor are both 49.5 per cent shareholders in Esat Digifone, the highly successful second mobile operator. Esat Telecom also owns a fixed-line business with Internet and data operations and is the second largest telecoms group in the Republic.

Asked why the company had increased its initial offer, Mr Thon said it had "reflected and seen the market reaction" over the past two weeks. "But we really think this offer is compelling for the shareholders," he said.

In a short statement last night, Esat Telecom said the initial offer was rejected by the board as fundamentally undervaluing the company, its assets and prospects. "Nothing has changed. The company believes that little can be gained by continuing with an offer which has been judged by the market to be inadequate."

Esat, which had dismissed the initial offer as "derisory", last night said it would make a further announcement in due course. "In the meantime, the directors of Esat Telecom urge shareholders to take no action," it said.

Telenor has continued its pursuit of Esat despite last week's embarrassing break-up of its merger with Swedish telecoms group Telia. Both companies had made the initial bid for Esat.

Telenor is understood to be keen to be seen to proceed with the bid following the merger collapse and is due to float next year. It also wanted to end the uncertainty over its plans for Esat.

Telenor International's managing director, Mr Morten Sorby, said that when the merger had broken down last week, "and Newtel was not around, the share price fell". He maintained that yesterday's further share price rise was being driven by Telenor's bid.

Telenor said it would shortly send a document to shareholders showing Esat to be an underperforming stock for most of 1999 and one facing significant strategic challenges. Mr Thon said it had underperformed the Nasdaq by 29 per cent between January and November 29th. (The initial Telenor/Telia bid was made on December 1st).

Telenor also said last night that the increased offer "substantially exceeds Esat's intrinsic value". The revised bid means the acceptance period has now been extended by a week to January 14th, although it could be further extended. Telenor has also revised the offer to provide a loan note alternative, for certain holders of Esat shares outside the US, "which may facilitate capital gains tax planning for those holders".