France Telecom's shares shot up by 7 per cent yesterday as the group walked away from a controversial friendly takeover of the Nordic group TeliaSonera because the two companies could not agree a price.

The $41bn (£21bn) bid put forward by Didier Lombard, France Telecom's chief executive, early last month was immediately rejected by TeliaSonera, 37 per cent of which is owned by the Swedish government, on the basis that it undervalued the group. France Telecom had signalled there might be some flexibility in its offer and the two boards were given two weeks to discuss their options, but when the deadline passed yesterday a deal had not been reached.

"As the terms and conditions have not been significantly improved, the board of TeliaSonera maintains its view that the proposal substantially undervalues the company," a statement from the Swedish company said.

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France Telecom remained bullish, despite the rejection. The company's management claims that the offer, which would have instigated one of the biggest mergers in Europe's telecoms industry, was a good idea but by no means central to its expansion plans. "The proposal aimed to create a world leader in the sector with solid growth prospects and value creation for both parties," a statement said. "As previously noted, France Telecom confirms that the project is not essential to the pursuit of its strategy."

Shareholders in France Telecom are likely to view the collapse of the deal with relief. Concerns over the synergies the tie-up could produce saw the group's share price lose around 20 per cent after the proposal was announced. It started to bounce back as soon as the company's withdrawal was announced to the markets. But TeliaSonera's price closed down more than 10 per cent, having risen in expectation of a bidding war.

The French group's offer was for 52 per cent cash, at 63 Swedish kronor (£5.25) per share, and 48 per cent in shares, at 56.2 kronor. Analysts were always sceptical that the French group would add much to its initial offer price because of the company's strict internal rules related to debt management, value creation and shareholder remuneration.

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