France Telecom has withdrawn its unsolicited US$42 billion bid for TeliaSonera, after failing to agree a price with the Swedish operator’s board. “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,” noted a statement from France Telecom. The French operator added that the merger was “not essential” to its strategy. The proposed transaction would have created Europe’s largest telecommunications company.

Today’s announcement comes after month-long talks between France Telecom and the Swedish government, which is TeliaSonera’s main shareholder. Earlier this month, TeliaSonera’s board rejected the initial US$9.32-per share bid, saying it substantially undervalued the company’s potential. The offer represented a 26 percent premium on the Swedish firm’s stock price on the day France Telecom disclosed its interest. TeliaSonera’s board was seeking a price of around US$44 billion, according to insiders quoted by the Financial Times (FT). The Swedish government reportedly plans to sell its 37 percent stake in TeliaSonera before 2010. Since a sale to a rival operator now appears unlikely, the government could seek to sell its package on the open market, says the FT.