City broker Collins Stewart Tullett said takeover talks were in the final stages yesterday as it announced a ten per cent fall in half-year profits.

Collins Stewart said talks with potential bidders had persuaded it to open up its books, allowing buyers to see its accounts, with that process likely to be completed by the end of next month.

Three parties are believed to be in the takeover race and media reports have tipped US buyout companies Thomas H Lee and Hellman and Friedman as front-runners.

Deutsche Boerse - the German company that tried to buy the London Stock Exchange - is also reported to be in contention for the UK company, which is valued at more than £1.3bn.

Collins Stewart became the second largest inter-dealer broker in the world a year ago when it landed rival Prebon in a £123m acquisition.

Inter-dealing, which involves trades in bonds and derivatives, accounts for 80 per cent of the company's revenues, with the rest generated by its traditional stockbroking business.

Costs incurred in the Prebon deal were pinpointed by Collins Stewart as the reason why pre-tax profits fell to £39.9m during the six months to June 30, from £44.2m a year ago.

Although the group has made annual savings of more than £65m since the acquisition, these have been offset by £77m of one-off costs.

Collins Stewart, whose chief executive is leading City figure Terry Smith, revealed that it was a takeover target last month and its shares have risen by a quarter since then. The group now has a market value of £1.34bn.

Chairman Keith Hamill said: "Discussions are continuing with the parties involved.

"Completion of these discussions requires the performance of certain due diligence and liaison with the regulatory authorities.

"It is not possible to give a definitive timetable for this process. The board believes that this process should be completed by the latter part of October."

Suitors will have been reassured by comments from Mr Hamill that trading conditions remain generally satisfactory in all of the major markets in which Collins Stewart operates.

The company had a positive view of the outcome for the full year, even though the inter-dealing brokerage business was disrupted by the London bombings in July and a fire in the basement of its head office the following month.