The UK’s largest video games company shed more than half its value today after SCi Entertainment revealed that takeover talks had collapsed and gave warning that a delay to the next Lara Croft title is expected to lead to it posting a full-year loss.

In September SCi said it had held "extremely preliminary discussions" over a possible takeover. It had been thought, however, that Citigroup and KBC Peel Hunt, the bankers handling the sale, were failing to match the price expectations of Jane Cavanagh, the SCi chief executive, who holds a 5.6 per cent stake.

On Thursday, SCi said talks with "various interested parties" had fallen through. The name of SCi's suitor was not given, but speculation had initially focused on Ubisoft, of France, the maker of Tom Clancy's Splinter Cell before shifting to China's CDC Corporation, which specialises in online games.

Time Warner, a 10 per cent shareholder in SCi, was not thought to be interested.

Today, shares in SCi plunged to levels not seen since 2004. The stock was last down 72p, to 62.5p, wiping about £60 million from the group’s value.

The collapse deals a blow to Robert Tchenguiz, the entrepreneur best-known for his property investments, who holds 22 per cent of SCi through a mixture of direct and indirect investments, thought to have been acquired at between 480p and 500p a share.

Time Warner acquired its stake in March at an average price of 502p.

SCi said in a statement: "The Board no longer believes that a sale of the company for its full value is likely to be achieved."

The timing of the initial move on SCi had been widely seen as opportunistic, coming after a profit warning prompted by SCi’s failure to judge the popularity of new generation consoles – especially Nintedo’s Wii.

SCi is Britain's only large independent publisher and developer of games and is behind games such as Championship Manager, Hitman and Kane & Lynch.

Lara Croft, its best known asset, came into its hands after SCi's management pulled off the acquisition of the larger Eidos, home to the cyber heroine, in 2005.

Initially, SCi restored credibility to the battered Eidos operation, which repeatedly had missed shipment deadlines and nearly destroyed the value of the Lara Croft franchise with the unplayable Angel of Darkness.

The Tomb Raider series is still one of the bestselling video game franchises, with more than 32 million copies sold.

Analysts at KBC Peel Hunt said that SCi was likely to remain a target.

"Although the bid talks are off we believe SCi will be approached again given the inevitable consolidation of digital intellectual property, particularly old and new media," they said.

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