Shares in Domestic & General, the extended warranties specialist, tumbled today after the emergency insurer Homeserve said it had pulled the plug on a possible £500 million takeover bid.

Homeserve, the self-styled "AA for the Home", said it had decided against an offer and had “accordingly, withdrawn from the process”.

The surprise move follows three months of discussions between the two companies over a deal that would have been a major stepping stone in fulfilling Homeserve’s ambition of providing total emergency cover.

Brian Whitty, Homeserve executive chairman, told Times Online that the decision had nothing to do with the current crisis on debt markets.

He said: “We were not able to satisfy ourselves that a deal would have been sufficiently earnings-enhancing or that it would not have been dilutive to our own growth.”

Domestic & General, which provides extended warranties on a variety of household appliances, said that talks with another possible bidder were continuing.

It added: “The board of Domestic & General remains confident that significant value can be realised for shareholders through a premium offer or as an independent group.”

But shares in the group fell nearly 4 per cent, or 42p, to £11.90. The shares are now 19 per cent below the £14.75 high they hit earlier this month.

Homeserve shares rose 15p to £16.61.

Mr Whitty said Homeserve would focus on growing its own extended warranty business organically. It currently has around 200,000 warranty customers.

The group’s main money-spinner is providing emergency help for policyholders with blocked drains or cracked pipes, where it competes with Centrica, the owner of British Gas.

Homeserve demerged from South Staffordshire Water three years ago and expanded into Spain earlier this month with the acquisition of Reparalia, a property repair services firm.

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