Dairy group Unigate has called off its £1.6 billion sterling takeover talks with food-to-furnishings business Hillsdown Holdings but analysts said it was likely to bid again if its target was broken up.

The discussions were the second attempt by Unigate to buy the group that produces Typhoo Tea and HP Baked Beans.

Unigate's first bid offer of 207p per share for Hillsdown was rejected by the company last week.

The boards of both companies on Thursday disclosed that fresh discussions were under way which could have led to a bid valuing Hillsdown's shares at 217p each and the whole group at £1.6 billion.

The end of the latest talks will prolong uncertainty over the future of Hillsdown.

It unveiled plans earlier this year to sell its furniture arm, float off its chilled foods and house-building businesses and leave the rump of the group to trade as a grocery supply company.

Analysts said Unigate had two possible approaches to Hillsdown. One was to buy the entire group and then sell off the unwanted businesses leaving the food divisions.

The second and now the more likely approach, according to market watchers, was to wait for Hillsdown to complete the demerger of its business itself and then snap up the food business on its own.

Unigate shares had been pushed downwards by news of the talks as the market feared taking over the sprawling Hillsdown group would entangle the company in complex strategic problems.

But shares rose sharply yesterday with the announcement that the latest bid talks were over, while Hillsdown's shares fell equally sharply on the news.