The merger between Norway's Telenor and Sweden's Telia will create Europe's sixth-largest telecoms group as the pace of mergers in the industry quickens. It will also be Scandanavia's largest privatisation when new group is partly floated on the stock market in April.

The agreement was signed by Sweden's Industry Minister Bjorn Rosengren and Norway's Transport and Communications Minister Dag Jostein Fjaervoll in the early hours of the morning after all-night negotiations to get the deal back on track.

"Now we are in agreement in writing. Now we have sealed the whole thing," Mr Rosengren said.

The name of the new company, now that the proposed "People of Scandanavia" has been dropped, was also agreed but has been kept secret.

"Marriage made in hell"

It is the first major cross-border merger between state telecoms companies in Europe.

But the frictions between the two countries over closing the deal point to the kind of difficulties that are preventing more cross-border mergers from coming to fruition.

A dispute over who was to run the new company - a Swede or a Norwegian - caused the latest delay.

The Norwegians objected to the role of Telia chairman Jan- Ake Kark of Sweden in the new group - and his enhanced pay packet - without being consulted.

He was to have been appointed chief corporate advisor as well as chairman of the merged group - which was seen as undermining the position of chief executive Tormod Hermansen of Telenor.

Disparaging comments by the Swedish press about Mr Hermansen's shoes and his generous moustache also hit Norwegian sensitivities.

In last ditch talks, the two sides reached agreement that Mr Kark would not work full time for the new company - but he would keep his salary of 4.5m crowns.

Disparaging remarks

Tension between Sweden and Norway is nothing new.

Last month Sweden's Industry Minister Bjorn Rosengren had to make a public apology to Norway after off-camera remarks in which he called Norway "the last of the Soviet states" and "incredibly nationalistic" were broadcast nationwide.

Tensions exist over relations with the EU, with Sweden joining but Norway voting narrowly to stay out.

Norway's oil wealth also rankles with the Swedes, who have traditionally been Scandanavia's economic powerhouse.

State ownership

The conflict has dramatically reduced confidence in the company's future.

Under the agreement, the Swedish and Norwegian governments will retain a 51% ownership stake in the company until 2015. Initially, each will own a 40% share.

"Confidence in the company has been drastically weakened due to all these rows... and makes the bourse value of the company less than expected," said columnist Per Wendel in Sweden newspaper Expressen.

Other observers also warned that the new company could lose out on the global wave of consolidation that is sweeping the industry.