French conglomerate Bouygues on Tuesday snubbed an offer for its telecom unit from larger rival Altice that sources put at 10 billion euros ($11.2 billion), citing execution risks and confidence it could prosper on its own.
The board believes Bouygues Telecom is well placed to benefit from a new period of growth in the telecoms market, underpinned by digital usage, Bouygues said in a statement.
It added that the offer presents a "significant execution risk, which should not be borne by Bouygues, particularly in terms of competition law in both the fixed and mobile markets."
The move comes as a blow to Patrick Drahi, the billionaire backer of Altice, owner of mobile operator Numericable-SFR , who has bought four companies in the past 18 months.
Altice could not be immediately reached for comment.
If successful the deal would have combined the current No. 2 and No. 3 mobile operators to create France's biggest telecoms group and taken the French mobile market from four to three players at a time when the merits of such consolidation are being hotly debated in Europe.
The board's decision also follows opposition from President Francois Hollande's Socialist government who had expressed concern over the deal, saying it could be bad for jobs, consumers and investment.
Bouygues's board said it paid "great attention" to the social consequences of the deal.
Martin Bouygues, scion of one of France's top industrialist families, decided against parting with the telecoms business that is his main contribution to the conglomerate built by his father.
The 63-year-old Bouygues has already rebuffed at least two offers in the past year for the unit he founded in 1994, insisting as recently as last month that Bouygues Telecom could prosper on its own. He once replied to a question about selling the business: "And you, would you sell your wife?"
But the offer by Drahi outstripped past approaches. Drahi's own empire-building took off in 2014 when he beat out Bouygues to acquire Vivendi's SFR, the second-biggest mobile operator.
The 10 billion-euro price tag would have valued the unit as much as the entire Bouygues group before the offer was made public. It also eclipsed earlier offers from Orange and low-cost operator Iliad - each around 5.5 billion euros - as well as a previous 8 billion-euro approach by Drahi.
The business, which has been posting losses since Iliad broke into the French mobile market three years ago, had a 2014 total asset value of 5.8 billion euros.
The board said Bouygues Telecom had the means to return to a 2011 EBITDA margin of at least 25 percent by 2017.
Drahi, known for aggressive cost-cutting, could have extracted as much as 1 billion euros a year in synergies to raise profit margins, analysts estimated, but only at the expense of painful job cuts - which Bouygues had indicated he wanted to avoid.
The French government was also worried over an upcoming auction of radio spectrum for 4G mobile broadband networks from which the state wants to raise 2.5 billion euros.
"The offer does not factor in the imminent launch of the 700 MHz frequencies auction process and its consequences on the deal," Bouygues said.
Set against obstacles to the deal was the increasingly cut-throat nature of the French telecoms sector and how Bouygues Telecom, after a strong start, has struggled to keep up since Iliad's 2012 arrival as a fourth national player.
Bouygues shares closed down 0.13 percent, having jumped 13 percent on Monday on hopes of a deal. They were likely to fall sharply on Wednesday in reaction to the decision, analysts said.
Similar pain could hit the other French telecom operators, which had added more than 10 billion euros in market value in recent days, as observers bet that mobile consolidation would end a three-year-old price war.
For its part, market leader Orange said that it accepted Bouygues' decision with "serenity" since it had the skills and size to succeed despite tough competition.
"Nevertheless we are convinced that in the long-term the French telecoms market cannot support four network operators," a company spokesman said.