Norway's Telenor and Malaysia's Axiata Group said they had called off talks to create a telecoms joint venture with nearly 300 million customers across South Asia and Southeast Asia on Friday, sending Telenor shares lower.

The proposed non-cash combination of their telecom and infrastructure assets in Asia would have had operations in nine countries including Thailand, Malaysia, Bangladesh, Pakistan and Indonesia, with a total population of nearly 1 billion people.

It would have competed with firms such as Singapore Telecommunications and created an entity worth $40 billion (RM167 billion) including debt, a person with knowledge of the matter told Reuters in May when the talks were first announced.

Telenor said in a statement that both parties had agreed to end the discussions "due to some complexities involved in the proposed transaction", without giving further details of what had scuppered plans for the largest such cross-border deal in Asia, excluding China and Japan.

However, Telenor left the door open to a deal with Axiata, saying both companies "still acknowledge the strong strategic rationale" of the combination and "do not rule out that a future transaction could be possible".

Shares in Telenor were down 5.2 percent at 3.43pm (Malaysian time), set for their worst day in three years and among the worst-performing stocks of the European Stoxx 600 index. Axiata shares were trading up 2.3 percent before being halted, pending the news.

"It has been a theme among investors that this deal could have created a fair amount of value," said Stefan Billing, analyst at Kepler Cheuvreux.

"Telenor and Axiata have been talking about synergies, and there has also been expectations on a high valuation of the planned listing, so it's natural that there is a bit of disappointment initially."

The Norwegian mobile operator was to have owned a 56.5 percent stake and Axiata the remaining 43.5 percent with no cash changing hands, the companies had previously said.

Friday's announcement comes days after Axiata said the planned merger was on track.

Axiata was not immediately available for comment on Friday, while Telenor declined further comment.

Jobs and control

Control of the entity and job cuts could have been the main sticking points, particularly for the Malaysian government, whose sovereign wealth fund Khazanah owns a 37 percent-stake in Axiata.

"Malaysian government-linked corporations usually want more control and that's no different with Axiata. But would Telenor let go?" a telecoms analyst in Kuala Lumpur said, declining to be named as he was talking about the government.

"(Malaysian Prime Minister) Mahathir (Mohamad) was also clear to say the government did not want any retrenchment in the cost rationalization," said the analyst.

"In any merger, there is always cost rationalization, and the first thing is chopping headcount. If the company is not allowed that, what's the point of the exercise?"

"The Board acknowledges the strong strategic rationale of the proposed transaction and is equally cognizant of the level of complexity of such a deal," Axiata chairperson Ghazzali Sheikh Abdul Khalid said in a statement

- Reuters