In a statement to the stock exchange, Peterhouse said: "David Jackson and Simon Foster announce that they are no longer involved in a possible offer for Peterhouse and have no intention of making an offer for Peterhouse.
"Accordingly, they are considering their position in relation to the Babcock offer and will make their views on that offer known in due course."
Jackson stated that he believed that the Babcock offer was inadequate for shareholders, but could not make a rival bid because he did not have time to conduct due diligence.
Babcock has set up a £140m credit facility with several banks to fund its offer and to provide working capital.
Sources close to the deal now expect shareholders to accept the offer in the next few weeks.
Sir George Russell, a non-executive director, has retired from the board. Michael Davies becomes the company's senior non-executive director.
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