UPDATE 3-Oberthur walks away from De La Rue bid

* French co says no intention to make an offer

* Says De La Rue’s board failed to enter talks

* De La Rue’s shares down 16 pct

(Recasts with Oberthur statement, updates shares)

By Kate Holton and Paul Sandle

LONDON, Jan 24 (Reuters) - France's Oberthur Technologies [FCOFDO.UL] said on Monday it had walked away from a bid for De La Rue DLAR.L after a higher indicative offer failed to engage the banknote printer's board in talks.

Oberthur said it had increased its indicative bid to 935 pence per share from 905p, with the objective of receiving a recommendation from De La Rue.

But earlier on Monday, the British firm which has had problems in its key Indian market said it had rejected the improved cash proposal, saying it still significantly undervalued the group.

De La Rue’s shares plunged 15 percent to close at 695 pence after Oberthur Technologies said it would not make a bid.

“We have repeatedly sought to enter into constructive discussions with the board of De La Rue over the last four months and we believe our approach could have offered a much needed catalyst to restore De La Rue’s reputation,” Oberthur President Jean-Pierre Savare said.

“The board of De La Rue has not only rejected our approach but has also ignored requests for clarity to be given to the market in relation to fundamental questions about the company’s customer relationships and financial prospects.”

De La Rue Chairman Nicholas Brookes said: “The board has carefully considered Oberthur’s revised proposal and believes that it continues to significantly undervalue the company and its prospects ... The board therefore unanimously rejected this latest approach.”

Evolution Securities analyst Adrian Kearsey had said the increased offer was an improvement but he thought the final price would need to be over 10 pounds to get a recommendation.

An offer of 935p would have valued the group at around 925 million pounds ($1.5 billion).

The public takeover saga follows a difficult six months for De La Rue, which has been hit by problems in India.

The share price dropped by around 30 percent when the company first reported production problems at its plant in July last year. It then warned in November that the difficulties could lead to the loss of a top customer, which sources said was the Reserve Bank of India.

The shares recovered much of their losses after Oberthur made its initial bid in December, but they were still trading well below the offer price as doubts remained over De La Rue’s future work in India and whether a deal would happen.

A source familiar with the situation told Reuters on Sunday that Oberthur had joined forces with private equity firm Bain Capital to lift its bid, although Bain was only interested in a deal if it was supported by De La Rue’s board. [ID:nLDE70M0A9] (Editing by Mark Potter and David Holmes) ($1=.6274 pounds)