Telefonica has previously also threatened to attempt a hostile takeover of Portugal Telecom, but would likely be stymied by the Portuguese government over any such attempt.
Telefonica withdrew its €7.15 billion bid for Portugal Telecom's stake in their Brazilian joint venture on Saturday, after the deadline for acceptance expired.
Portugal Telecom had been forced to let the offer lapse after two days of board meetings failed to resolve an internal deadlock over the offer, the New York Times reported.
As a result, Telefonica followed through on an earlier pledge to drop the bid if it was not accepted by July 16.
The future of the Brasilcel holding company joint venture is now in doubt, as Telefonica has already threatened to seek to dissolve the company as an alternate means of getting their hands on the prize – full control over Brazilian mobile operator Vivo.
NYT also speculates that Portugal Telecom's shares may take a battering, as their recent performance had been buoyed by the merger talks.
Telefonica had raised its offer for Brasilcel twice. A majority of shareholders approved Telefonica's proposal in June, but the deal was then blocked by the Portuguese government in a controversial move that attracted the ire of both Telefonica and the EU.