In an interview with business newspaper Les Echos, the chief executive of France Telecom Stephane Richard said the firm's management – and not the government – should be deciding the strategy for Dailymotion, owned by France Telecom, which uses the brand name Orange.
"Dailymotion is a subsidiary of Orange and not the state. It is the company, its management and its board that manages this issue," Richard said.
"I had refused Yahoo! the option of buying all of Dailymotion and we were on the verge of finding an arrangement," he said.
Yahoo! Inc. had been in talks to buy a 75 percent stake in Dailymotion, a leading video-sharing website in Europe. But the government, which holds a 27 percent stake in France Telecom, had insisted on a 50-50 split.
Industrial Renewal Minister Arnaud Montebourg said on Wednesday he had met with Yahoo! executives and blocked the deal because the US firm was seeking to "devour" the French company, which he referred to as a "French nugget."
"Yahoo! wanted to devour Dailymotion. And we said 'No' to them," Montebourg told Europe 1 radio on Thursday.
"It's in France's interest, and the interests of Dailymotion, which is a French nugget that we must protect," he added.
Montebourg said the government wanted a "balanced" agreement that would allow Dailymotion to retain its identity.
The collapse of the agreement dealt another blow to France's business image, with the outspoken Montebourg at the centre of complaints in the corporate world that France's Socialist government is anti-business.
Richard said France Telecom was now on the hunt for other potential partners to work with Dailymotion, which is seeking to expand its reach.
"Our priority is to find an ally who can help develop Dailymotion outside Europe," he said.
"We had looked at more than 60 potential partners in France and abroad before focusing on Yahoo!. Now we will restart our search."
For his part, Montebourg has elsewhere shown himself to be very open to American takeovers of French companies, in recent times.
In February, he made headlines after writing to Maurice Taylor, CEO of American tyre giant Titan, soliciting interest in the takeover of a loss-making Goodyear plant in Amiens, northern France.
In the end, however, Montebourg became embroiled in a very public war of words with the US industrialist, after Taylor rebuffed the minister's advances, writing, "How stupid do you think we are?"