Shares of

Freeserve

(FREE)

plunged Monday after the company announced that talks had been suspended -- at least for the short term -- with the German telecommunications giant

Deutsche Telekom

( DT), which had been negotiating to acquire Britain's largest Internet provider.

Deutsche Telekom, Europe's largest and the world's third largest telecommunications service provider, has held on-and-off talks through its Internet arm,

T-Online International

, with the British Internet company and its parent, the British retailer

Dixons Group

, for several months. At least one news service had reported that the companies would announce a deal over the weekend.

Instead, early Monday, the British Internet and e-commerce service provider released a statement reporting: "Whilst certain discussions continue, Freeserve does not expect that this process will lead in the near future to a bid for the whole of Freeserve."

To make matters worse for the Hertfordshire, England-based company,

Merrill Lynch

downgraded Freeserve shares Monday from a "buy" rating to a "neutral" rating, after Freeserve disclosed that it had suspended talks with Deutsche Telekom's T-Online International. On Friday, Merrill Lynch released a bulletin emphasizing that "striking some sort of 'deal' soon is time critical."

Without such a statement, Merrill Lynch said Freeserve's stock was likely to come under pressure.

Indeed, Freeserve's shares fell sharply in London and then in New York. Freeserve's American depositary receipts finished down 7 7/8, or 12%, at 59. Meanwhile, the American depositary receipts of Deutsche Telekom were up 3/16 at 59 9/16.

Also weighing on Freeserve's stock price was the release of its 2000 fiscal year results, which showed a decline in visits to its Web site despite the company's attempts to focus on the expansion of its customer base and increase in revenues.

"Our revenues are up, our operating losses are down, our reach is increased," said John Pluthero, chief executive, in a statement released Monday.

The number of Freeserve active registered accounts climbed to 1.93 million in May, up 64% from the previous year, and they rose to 1.97 million in late June, but that number is up only slightly from 1.91 million in mid-March. Meanwhile, page impressions jumped nearly 140% to 151.5 million in May, compared to a year earlier, but that is down from 162 million in February.

While it managed to trim its operating loss in the fourth fiscal quarter, ending April 29, Freeserve's operating losses were still about 4.77 million pounds for that period. Operating losses for the fiscal year 2000 were reported at more than 23.7 million pounds.