The all-paper deal to transfer First Leisure's 18 health clubs to Cannons, owner of London's Harbour Club, would have created the UK's largest fitness company, worth double the value of Cannons.
A source close to Cannons said: "The last thing Cannons' shareholders want is to pay too much for a business. Cannons didn't have to do a deal. They're financially secure - this was an opportunistic negotiation."
Michael Grade, chief executive of First Leisure, confirmed failure to reach a financial agreement had scuppered the deal. "Both parties examined the prospect of a merger but were unable to reach an agreement on financial terms," he said.
He added the group was examining its options in line with the strategic review announced in January, a statement interpreted as further indication the group is looking at a break-up.
Shares in First Leisure dropped 7.5p to 246p while Cannons Group was unchanged at 192.5p, reflecting sentiment that the collapse of talks had left First Leisure more vulnerable.
One analyst said: "When Michael Grade joined, the talk was of making proper money. It's all a bit sad but those high hopes have faded. If they sell the health clubs, for shares rather than cash to invest, they'll start to fade away and if someone wants the nightclubs they'll sell those too."
Analysts tipped Whitbread, Holmes Place, Fitness First, Greenalls and Scottish & Newcastle as possible buyers.Reuse content