Deutsche Telekom, Europe's largest telecoms group, will acquire a 35 per cent stake in state-owned Croatian Telecom for $850 million (€794 million). The German bid exceeded by a wide margin the only rival offer, a $641 million bid by Telia and Telenor, the Swedish and Norwegian telecoms utilities.

The government last week rejected the Scandinavian consortium's initial $611 million bid, and re-opened the tender to allow Deutsche Telekom to bid following negotiations with the German group about terms and conditions.

"Telia and Telenor used different models for their valuations but arrived at very similar results. The Germans must have found value that we could not discover. No one can explain it," said Mr Lars Lindborg, Telia project leader in Croatia.

Mr Andrea Salvato, vice-president of Chase Manhattan, which advised Deutsche Telekom, said: "We feel very comfortable with our valuation. We cannot understand why the Swedish bid was so low."

Mr Lindborg said: "It was a tremendous advantage for the Germans to know what the other participants were willing to bid."

The Croatian government, advised by Dresdner Kleinwort Benson, claimed the price to be paid by Deutsche Telekom - which values the target at $2.4 billion compared with Telia/Telenor's $1.83 billion - was one of the highest achieved in any telecoms privatisation in central and east Europe.