Eidos, creator of Lara Croft, scotched rumours yesterday that it is in takeover talks and admitted that sales of its newest game, Hitman: Contracts, have slumped, sending its shares crashing.

Speculation has mounted over recent weeks that Britain's largest independent computer game publisher was going to be bought, but yesterday Eidos said it had not received an approach and it is not in talks. The news sent Eidos shares down 56.5p to 120.5p, a drop of almost 32%.

The fall is likely to cast the spotlight on Eidos's biggest shareholder, Schroders, which has been reducing its stake over recent weeks and sold 325,000 shares on Wednesday.

In a trading statement Eidos said that despite initial positive reaction to Hitman: Contracts, released at the end of last month, demand on both sides of the Atlantic has dropped suddenly, especially among Playstation2 owners in the US.

After delivering a run of 1.5m, the company had expected to produce another 700,000 copies of the game, but it has been forced drop the plan. It had been expecting to make £9m on repeat orders for the game, money it has now lost.

"Thankfully," explained European managing director Jonathan Kemp, "we operate in a just-in-time industry" - so Eidos had not actually made the copies.

The profit warning raised fears that the video games market is about to turn down again but Mr Kemp said that big hardware manufacturers have staggered the launch of new consoles so the market will not see a repeat of the bleak conditions of two years ago.