Collins Stewart Tullett, the top City broker run by Terry Smith, has abandoned its £1 billion-plus takeover talks with three American private equity groups after they failed to table a sufficiently high offer.

The broking firm, which is now likely to deliver a substantial cash windfall to shareholders, is understood to have been in detailed takeover talks with KKR, the Blackstone Group and Hellman & Friedman over a bid likely to have been comfortably in excess of £1.2 billion.

Collins Stewart, which has at no point named its potential predators or the prospective price, revealed in mid-August it had received "a number of approaches".

Shares in the broker, which have risen strongly since it revealed the approaches, valued the group at more than £1.3 billion last night based on the closing price of 620p.

But in a statement to the stock market this morning, the brokerage group said that during these discussions it became "apparent that the terms of any such offer would not satisfy shareholders' reasonable expectations about the valuation of the business".

The broker added: "The board now intends to pursue other means to deliver value to shareholders." Collins Stewart Tullett did not detail whether this would include a shares buyback or the level of any expected cash return and declined to comment beyond the terms of this morning's statement.

But, according to City sources and bid observers, there were two central reasons for the collapse of talks.

First, following the uncertainty created by the collapse of American brokerage group Refco, it is believed that nervousness among lending banks would have made it more expensive for the private equity firms to borrow to fund their bid - thus reducing its cost-effectiveness.

It is also believed that a move by the Financial Services Authority, the markets watchdog, to grant Collins Stewart Tullett a substantial waiver on the amount of regulatory capital it has to hold has given the broker considerable additional financial headroom and flexibility.

Broking sources said that the waiver, which relates to capital Collins Stewart has to hold against the value of its roughly £400 million of goodwill, means the broker no longer has to reserve as much and is now free to take on additional debt to fund its operating business and help pay for a shares buyback.

The private equity groups made no immediate comment about the ending of talks.

Blackstone & Hellman & Friedman were also involved in the aborted bid for British power station Drax, which ended yesterday.

To follow what happens to Collins Stewart Tullett shares today click here

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