Struggling transport group National Express saw shares hammered after it said talks over a £765 million takeover have hit the buffers.

Spain's Cosmen family, the group's largest shareholder with 18.5 per cent, had been working on a potential deal with buy-out firm CVC since July.

National Express, which is labouring under debts of almost £1 billion, has been in the takeover spotlight after its rail business was hit by recession. The company is due to hand back its loss-making East Coast Main Line franchise, which it paid too much for at the height of the boom, to the Government by the end of the year.

The Cosmens took their stake in 2005 when National Express entered the Spanish coach and bus market with the acquisition of Alsa, which was owned by the family.

They will instead support plans for National Express to strengthen its debt-laden finances by tapping shareholders for funds.

Panmure Gordon analyst James Cooke said: "National Express is now likely to raise new equity, possibly around £400 million, in order to strengthen its stretched balance sheet."

Reports suggested concerns among would-be buyers over the refinancing terms for part of National Express's debt due next year.

But the firm said it continued to perform "resiliently" despite challenging trading conditions. It is in talks with major shareholders over the fundraising to ease its £1 billion debt pile and give the group a "strong, stable platform".

"The board believes that National Express has a strong future as an independent listed company, offering a compelling investment case building on the strength of its individual businesses."

The failure of the consortium to complete a deal comes as a blow to rival Stagecoach, which had agreed an outline deal with the suitors to take on National Express's UK rail and bus business.

National Express had been contracted to run the East Coast franchise until 2015, but its expensive bid was derailed as passenger growth stalled and the rail line lost more than £20 million in the first half of this year.

The break-up of the group would have seen Stagecoach take on the firm's East Anglian and c2c franchises, as well as the group's bus division.

The UK's biggest transport firm, FirstGroup, was also considering an all-share merger with National Express but pulled out of the running in July.

National Express has 43,000 employees worldwide. Alongside its rail arm the group's bus business employs around 5,100 people in the West Midlands and Dundee, carrying around 320 million passengers a year.

The group's coach operation has 1,800 staff and carries more than 18 million passengers a year.