The Italian telecoms group said it was to break up its two remaining businesses and was seeking bids of around £550m for its UK and Italian broadband operations.
The mobile phone retailer and broadband provider Carphone Warehouse had been pinning its hopes on a successful bid for Tiscali.
Last week, Carphone Warehouse generated £1.1bn by selling 50% of its retail business to US consumer electronics retailer Best Buy, leaving it well-positioned to bid for Tiscali's UK broadband operation.
That strategy now appears to be in tatters, along with the plan of Charles Dunstone, Carphone Warehouse's chief executive, to rival BT as the UK's biggest broadband provider.
Its failure is BSkyB and Vodafone's gain. The firms made the shortlist following a meeting of the Tiscali board yesterday.
Tiscali said it had received an unspecified number of offers to buy all or part of the company, which also runs Italy's third biggest broadband network.
Carphone Warehouse made an initial bid last week, along with as many as six other companies. These bids were discussed by the Tiscali board yesterday, which will now open its books up to six companies.
Carphone Warehouse could re-enter the race, but it would have to substantially up its offer.
The sale process is due to be concluded by the end of next month.
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