The future of TeliaSonera, the Nordic telecommunications provider, was unclear yesterday after France Télécom withdrew a merger proposal that would have created the world's fourth-largest group in the sector.

The Gallic group threw in the towel after the TeliaSonera board rejected an offer that it said undervalued the company, which was formed in 2002 by the merger of Telia, of Sweden, and Sonera, of Finland.

The move left the Swedish Government, TeliaSonera's biggest shareholder with a 37.3 per cent stake, looking for a purchaser willing to pay a price that most analysts regarded as unrealistic. They said that TeliaSonera was unlikely to find a buyer in present market conditions.

Stockholm's financial demands prompted Didier Lombard, the chief executive of France Télécom, to end negotiations after he refused to make substantial improvements to his initial offer for fear of alienating his shareholders.

TeliaSonera shares, which had risen in anticipation of a bidding war, fell by 10.4 per cent to SwKr44.6 after the announcement. Shares in France Télécom surged by 7.2 per cent to €18.70 as investors reacted with relief to the end of a deal that never had their backing.

Aurel, the Parisian brokerage, welcomed Mr Lombard's “conservative line” and said that he had been right “to pull out rather than bid up”. Investors were also gratified when Gervais Pellissier, the France Télécom financial director, said that a cash return was now “more plausible”.

Mr Pellissier said that his company had no other target in the short term but maintained its ambition to expand through acquisitions in the medium term. KPN, the Dutch operator, is thought to be a potential target.

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