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Talks between Tiscali and BSkyB have broken down as the credit crunch impacts heavily on conditions for takeovers.

BSkyB’s bid for Tiscali has stalled, it has been confirmed, making the company the third UK internet service provider to baulk at its asking price.

According to sources cited in reports, BSkyB’s interest in taking over the Italian group’s UK business was stymied when a price tag of £450 million was mooted. This was some £100 million below BSkyB’s valuation of the company.

Tiscali has been up for sale in the UK since February this year and was originally anticipated to fetch around £500 million. The apparent failure of the parties to reach agreement comes after Carphone Warehouse and Vodafone have also dropped out of negotiations over a deal, also citing concerns over the price.

These have centred largely on the level of exposure that Tiscali has to the projected downturn in consumer spending, as well as the challenge that is presented by attempting to integrate and manage the smaller ISPs that come under its umbrella. These include junior providers Homechoice, Pipex and Freedom2Surf.

An anonymous source with knowledge of the talks told the Financial Times: “The ball is in Tiscali’s court, but essentially Sky is saying this isn’t worth what Tiscali is asking, and Jeremy Darroch [BSkyB’s chief executive] appears to be taking a pretty strong stand.

“They haven’t pulled out, but they are saying that it is now up to Tiscali to decide how much they need to sell this asset.”

However, the collapse of talks could now clear the way for Tesco to mount a takeover bid. The company has not formally lodged an interest in Tiscali, but speculation has been mounting that it could following comments made by chief executive officer Lance Batchelor.

Mr Bachelor told the Independent that Tesco is aiming to become the leading UK provider of bundled phone and broadband services and is targeting TalkTalk’s position in the market. A bid for Tiscali could therefore prove a strategic fit.

A company taking over Tiscali would swell its subscriber base by 1.7 million customers. Should BSkyB’s bid have proved successful it would have effectively doubled its subscriber numbers to 3.6 million. This would have seen it become the third biggest player in the UK behind BT and Virgin Media.

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