Shares in FranceTelecom shares soared today as investors reacted with relief to an announcement that the Gallic communications group had withdrawn a takeover bid for TeliaSonera, its Nordic rival.

With the French company unwilling to improve an offer which had been rejected by TeliaSonera's board, Didier Lombard, France Telecom's chief executive, threw in the towel over his controversial expansion plans.

TeliaSonera shares, which had been spiralled in anticipation of a bidding war, plunged by 13 per cent to 43.30 Swedish kronor in early trading after the France Telecom announcement.

France Telecom's stock rose by 6.22 per cent to €18.54.

'By pulling out, France Telecom has show that it is not in the business of getting big at all costs,' said Vincent Griffon, an analyst at CM-CIC Securities. 'This announcement should reassure investors.'

Aurel, the Paris brokers, also welcomed Mr Lombard's 'conservative line' and said he had been right 'to pull out rather than bid up.'

France Telecom had touted the merger as a a strategic coup in a period of intense telecommunications sector consolidation. It would have created the world's third biggest operator with 237 million customers in 30 countries.

But with France Telecom investors concerned at a deal with only limited synergies, negotiations stumbled over the price the French were prepared to pay.

The French said their offer valued TeliaSonera at almost E34 billion, although this was dispute by some analysts. The bid comprised 52 per cent cash and 48 per cent in shares, with the cash component pitched at 63 Swedish kronor per share and the share component at 56.2 kronor

The Swedish Government, which has a 37.3 per cent stake in TeliaSonera, is believed to have demanded an overall price of between 60 and 65 Swedish kronor to appease investors who bought shares in a public offering in 2000.

The Finnish Government, which holds a 13.7 per cent stake, is also understood to have wanted to drive up the price.

French executives are believed to have improved the stock component of the bid, but to the 60 kronor that was TeliaSonera's minimum price.

'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,' France Telecom said in a statement.

Although the French group insisted that its strategic objectives were unaffected, the zig-zag is likely to be seen as a blemish on Mr Lombard's broadly successful attempt to build France Telecom in a global player.

The company formed in 2002 by the merger of Sweden's Telia and Finland's Sonera, also faces uncertainty with the Swedish Government keen to sell its stake but only at a high price.

Norway's Telenor has been cited as a possible bidder, but refused to comment today.

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