Shares in the insurance broker Jardine Lloyd Thompson tumbled 39.5p to 350p yesterday after its smaller rival Heath Lambert broke off takeover talks.
The fall - the steepest by any constituent of the FTSE 250 - demonstrated the enthusiasm within the City for the mooted tie-up. Analysts at Morgan Stanley had told clients that deep cost savings from the deal could boost JLT's earnings per share by as much as a quarter.
Publicly, both companies put the termination of discussions down to disagreements over Heath Lambert's operating model.
However, the industry publication Insurance Insider cited sources familiar with the matter who said the negotiations had broken down over price.
JLT was believed to be offering a little less than £130m but other sources said Heath Lambert, led by the chief executive Adrian Colosso, had tried to push that higher.
Industry experts warned the breakdown of the talks could usher in a period of instability at Heath Lambert and that rival bids may be on the horizon. Aon, the country's second-biggest insurance broker, and Willis were both thought likely to be interested.
Heath Lambert is understood to have rebuffed an offer from Willis in favour of the JLT proposal. Other brokers are likely to be interested in parts of Heath Lambert's business.
Mr Colosso said yesterday: "We began discussions with the aim of combining our increasingly successful business model with the additional resources of JLT.
"As discussions progressed we became less confident that we would be able to continue with this model and therefore less confident of achieving the objective. Proceeding would not have been in the best interests of our staff or clients."
Mr Colosso's company is organised into relatively autonomous teams, with distinct profit centres and remuneration policies, to allow it to compete with bigger rivals. JLT did not think loose structure was appropriate within an enlarged group.
Other aspects of the structure of the proposed deal had also raised eyebrows within the industry. Mr Colosso, who has run Heath Lambert since March last year, Mike Bruce, the managing director, and Keith Hamill, the non- executive chairman, stood to net cash and shares worth £5m between them.
They alone would have been awarded extra Heath Lambert shares, earmarked for managers after the company's latest refinancing a year ago, but as yet unallocated. Between them, their 11 per cent stake would have fetched about £3m in a sale to JLT.
Mssrs Colosso and Bruce were also in line for "golden hellos" from JLT, where they would have assumed senior roles, worth about £1m each on top of extra pension benefits not extended to other Heath Lambert employees.
Some industry experts had argued that the planned deal would have been an excellent one for JLT but Heath Lambert stakeholders would be better served should the takeover be deferred.