Freeserve is still for sale, with France Telecom's internet service provider Wanadoo emerging as the most likely suitor.
Following the collapse of takeover talks with German ISP T-Online in June, Freeserve's owner, Dixons Group, has continued to seek a buyer for its 80 per cent stake in the subscription-free internet pioneer.
According to the Financial Times, talks are underway with Wanadoo likely to seal a deal that could be worth 175p per share - well below the 600p per share price tag muted during the T-Online discussions.
Freeserve's share price jumped on the news, hitting a high in morning trading of 164p compared with Tuesday's closing price of 146p. But the excitement had fizzled out by lunchtime, with shares standing at 147.5p at 12.30pm GMT.
Freeserve confirmed in a statement that it is in discussions with an unnamed party or parties.
"The board has entered into discussions which may or may not lead to an offer being made for the company in shares," said the ISP. "On the basis of yesterday's share prices it is unlikely that any such offer would be at a substantial premium to Freeserve's share price. A further announcement will be made in due course."
Freeserve chief executive John Pluthero, at the launch of an online photo processing and storage partnership with Kodak in London this morning, offered no further comment.
Wanadoo has confirmed to Reuters that Freeserve is one of the investment opportunities it is looking at.
Freeserve's acquisition by Wanadoo would give France Telecom another strong holding in the UK communications market. France Telecom owns mobile operator Orange and controls a 22 per cent stake of cable operator NTL.
Earlier this month, Freeserve reported a weak first financial quarter with pre-tax losses of £17.8m for the three-month period ending 19 August, due partly to a £6.7m advertising campaign it described as "non-repeating brand repositioning".
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