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Merger talks that would create Europe's largest Web hosting group are still on going - just.

Redbus was on the verge of announcing a deal until talks were interrupted by the discovery of a reported £20 million cash shortfall in TeleCity's figures.

This led to speculation that the deal might be called off. Indeed, today's Times reports that Redbus has already walked away from the table.

This morning, however, TeleCity issued a statement to the Stock Exchange in which it noted press speculation concerning its "current financial position" but said that negotiations were still on-going.

But it warned that if the deal fell through it would have to "raise additional finance, whether debt or equity, in the short term to fund its business".

"TeleCity plc has received preliminary indications of support from certain of its key shareholders but no assurances can be given as to the level of funding which may be available to the Company," it added.

A spokesman for Redbus confirmed that negotiations were still underway. He described reports that the deal is worth £50 million as "pure speculation".

TeleCity has "Internet hotels" in 11 cities across Europe including Amsterdam, Frankfurt, and Stockholm.

Redbus has three locations in London, Paris and Milan. ®

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