France Telecom has abandoned its proposed merger with Nordic rival Teliasonera after talks broke down over the financial terms of the deal.
Sweden's Teliasonera rejected the $40bn (£20bn; 25.4bn euros) informal cash-and-share offer made earlier in June claiming it was too low.
The decision sent shares in France Telecom up almost 9% at one point, but shares in its takeover target tumbled.
A deal would have created the world's fourth largest telecoms operator.
In a statement, France Telecom said that "the dialogue opened with the board of directors of Teliasonera was unable to reach agreement on its financial conditions".
The company, which owns the Orange mobile phone network, did at no stage make a formal offer for Teliasonera.
Some analysts applauded the French firm's decision not to raise its offer.
"By pulling out, France Telecom has show that it is not in the business of getting big at all costs," said Vincent Griffon, analyst at CM-CIC Securities.
Shareholders were reassured by the move and sent France Telecom shares up as much as 8.9%. Shares were trading at 18.62 euros , up 6.7%, before midday.
But the news dented shares in Teliasonera, which shed 13.5%, to trade at 43.1 kronor ($7.20; 4.55 euros) in Stockholm.
"As the terms and conditions have not been significantly improved, the board of Teliasonera maintains its view that the proposal substantially undervalues the company," the Stockholm-based firm.
The Swedish government has been trying to sell its 37.3% stake in Teliasonera as part of sweeping plans to privatise a number of firms, but analysts said it was wary of selling at any price.
Finland, which owns 13% of Teliasonera, supported the board's move.