Texas Pacific Group (TPG), the buying consortium that was set to acquire the Burger King business from Diageo, has told the drinks giant that it will not be able to complete the acquisition of the fast food chain on the terms previously agreed.

However, in a statement, Diageo said: "TPG and its partners expressed a desire to continue in discussions towards a transaction materially different as to terms and structure."

Last summer, Texas Pacific Group, Bain Capital Inc. and Goldman Sachs Group Inc.'s Goldman Sachs Capital Partners agreed to acquire Burger King but they have apparently now balked at the asking price of $2.26 billion, in the light of the continuing price war in the US fast food industry and the reduction in Q4 EPS estimates for the main fast food operators.

Reports in today's Financial Times suggest Diageo has already rejected a scaled down offer from TPG. The report stated that an industry insider said the consortium offered about $1.6bn in cash late last week in a deal that would have left Diageo with a stake in the business. The insider said that offer was rejected

Diageo said it was continuing its discussions with TPG, while considering the other options available to it. The company had hoped to sell Burger King by the end of the year, though this looks unlikely now.

Stuart Price, beverage analyst with WestLB Panmure said: "Clearly contingencies are being sought. Unfortunately, this may not include re-opening the auction in the short term for Burger King as TPG has an exclusivity clause in the sale contract that prevent Diageo from talking with other bidders. Obviously, one way forward would be to buy out the exclusivity clause and seek other buyers; the other would be to buy out the exclusivity clause and seek to securitise the business itself."