France Telecom withdrew its $40 billion offer for Nordic telecoms group TeliaSonera today, saying the parties could not reach an agreement on the terms of a deal.
The announcement, coming after press and market speculation that a deal could be imminent, caused France Telecom shares to surge while TeliaSonera shares slumped.
"Following its proposal for a friendly combination with TeliaSonera announced on June 5th, France Telecom has today decided not to submit a firm offer to TeliaSonera's shareholders," the French group said in a statement.
"Notwithstanding the interest shown in the project, the dialogue opened with the board of directors of TeliaSonera was unable to reach agreement on its financial conditions," it added.
The company also said TeliaSonera, which is the Nordic region's biggest telecoms operator, was "not essential to the pursuit of its strategy."
France Telecom did not say how much it had offered in a raised bid but a source close to the company said it was consistent with the ceiling on debt published by France Telecom - something that still proved unacceptable to the TeliaSonera board.
France Telecom shares were up 7 per cent at €18.63 in early morning trade, having at one point risen by as much as 8.9 per cent to €19. The stock had fallen by around 20 per cent since French paper Le Figaro first reported its interest in TeliaSonera in April.
"In the short term, it's positive for France Telecom. It will boost their treasury and it should allow them to refocus on their strategy of making acquisitions in emerging markets," said Frederic Hamm, a fund manager at Agilis Gestion. Agilis holds France Telecom shares.
TeliaSonera shares were down 12 per cent at 43.80 crowns. France Telecom had made an indicative cash-and-share offer worth roughly $40 billion.
On June 5th, it unveiled an offer whereby shareholders would receive three new France Telecom shares for each 11 shares in TeliaSonera and would be guaranteed a cash option of 63 crowns per share for the first 500 shares.
The cash portion made up 52 per cent of the offer and the shares accounted for 48 per cent. However, TeliaSonera said today that France Telecom had not significantly improved its terms.