Swallow, known as Vaux Group until a month ago, briefed staff at its landmark brewery in Sunderland to warn them of redundancies after non- executive directors vetoed the buyout.
Peter Catesby, chief executive, said the talks had finally collapsed over a supply agreement which, according to observers, would have forced Swallow to subsidise the buyout team by committing itself to a three- year supply deal.
"The real issue was the difference in value between the alternatives and the management buyout," he said. "The buy-out had to its benefit the fact that all the jobs would have been saved."
The collapse of talks followed initial questions in the City over the value to shareholders of the pounds 68m price tag for the MBO, which would have included 350 Swallow pubs and the two breweries.
The buyout was led by Frank Nicholson, a member of the family which has controlled Vaux for more than 120 years. Sir Paul Nicholson, current chairman of Swallow, is Frank's brother.
Martin Grant and Neil Gossage were dismissed as chief executive and finance director of the group last month after they raised concerns about the MBO proposal behind the board's back with leading shareholders. One shareholder said their position had been vindicated by yesterday's developments.
Swallow intends to resume discussions with other interested parties in its efforts to sell the brewery.