Water, water everywhere, but not a drop to buy. Or so it must seem for Coca-Cola Enterprises whose unconfirmed talks with Scottish water brand Highland Spring have faltered at an early stage, according to industry sources.

Some speculate that Coke is playing a waiting game, others that its interest has cooled because an undisclosed private equity player is pondering a bid, sending the asking price soaring. Either way, for now Coke's ambitions to add a heavyweight water brand to its portfolio seem to have been thwarted.

Though Coke is understandably wary about dipping its toe in the water market after the Dasani incident, its caution is probably more to do with the state of flux the market is in at the moment.

"The problem is that while Highland Spring is a strong brand it is difficult to put value on it in a market still in the relatively early stages of development," says Simon Peacock at Catalyst Corporate Finance. "No one is really sure at this stage where the market will settle. There is a lot of growth around flavoured water and water with added benefits. But will these overtake existing mineral water brands that trade on their provenance? It would make sense to wait and see what consolidation produces. You may end up paying more but you reduce your risk."

Another issue may be price. Some sources put the figure under discussion at £500m, high for a target with a turnover of £50m, and potentially higher if a private equity bidder enters the fray.

Coke hasn't exactly helped its cause by paying what experts say was well over the odds for vitamin-added US water brand Glaceau recently. The deal, coming in at a cool $4.1bn worked out at 11 times Glaceau's turnover - huge in comparison with other similar deals in the food and drink sector.

"If you look at even some of the more glamorous deals the figures are usually just one or two times sales, nothing as high as 11," says Shaun Browne, managing director of corporate advisory firm, McQueen. "The highest I've come across in a similar sort of deal was the 4.7 times sales that Nestlé Waters paid for Powwow in 2003."

Of course, Coke's withdrawal may just be a bargaining tactic, a message to the Dubai-based al-Tajir family, which owns Highland Spring, that it is not prepared to pay this sort of multiple again. "It is not unusual to see the buyer walk away before re-entering negotiations at a lower price at a later date," says Browne. "There's a small danger of a private equity bid, which would put the price up, but it's difficult to see where value could be stripped out for a good return so I think it's unlikely."

Even so, it's a risky gambit. Coke is desperate to nab a bigger share of the mineral water market, which is now the third-largest soft drink category by volume, second by value and growing fast. So far its forays into the sector have been limited to Dasani, which was dropped a few months after launch when high levels of bromate were detected, and on-trade brand Malvern, which though a success lacks off-trade distribution and volume for expansion. Highland Spring would be a huge prize.

"Not only is it a strong brand but there would potentially be enough water, particularly if added in with CCE's Belgian Chaudfontaine source, to supply a pan-European brand," says Philip Nuttall at Clearwater Corporate Finance. "If this deal is off, it is difficult to see what CCE will do."

That is if. Neither Coke nor Highland Spring would comment, but the consensus is that we haven't seen the end game yet.n