"Gallaher will no longer be pursuing the possibility of making an offer for Seita,'" spokesman Ian Birks said after talks between the companies' chiefs. "At a meeting today between the chairman of Gallaher and the president- directeur general of Seita, it has been made clear to Gallaher that the board and management team of Seita are not prepared to co-operate with Gallaher in the formulation of a recommended offer for Seita."
The announcement sparked a brief rally in European tobacco stocks on speculation of a renewed wave of mergers and acquisitions.
In Paris, Seita confirmed that its president, Jean-Dominique Comolli, had met Gallaher chairman Peter Wilson. Seita said Mr Comolli repeated the company's commitment to a merger with Spanish tobacco group Tabacalera to form a new company, Altadis.
But Seita also said that Altadis would be willing to examine other alliances, a remark analysts said could open the door to a future deal.
"The interesting thing will be to see if this has flushed out any other bidders," said Andrew Darke, tobacco industry analyst at Williams de Broe.
Reports that British American Tobacco might pursue Gallaher have resurfaced after the Seita overture. Gallaher is eager to break out of its reliance on the declining UK market, but it was excluded from a flurry of tobacco dealmaking this year.
Gallaher closed down 0.8 per cent at 365p yesterday.