"Leeds Fans Utd has just been informed by the lawyers of Massimo Cellino that he no longer wishes to sell to Leeds fans," LFU said in a statement on Wednesday.
"Our insistence on him confirming his verbal offer of exclusivity in a legally binding agreement has forced transparency on his motives.
"It is much better that we identify this insincerity now before we spend our shareholders' money. This exercise has proved our capacity to adapt to any acquisition scenario very quickly.
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"We now know we have the capacity to do both a minority and majority deal, and it has shown that Leeds fans have a desire for fan ownership.
"We hope that Massimo will treat the club and fans with respect and honour," the statement added.
The Italian bought a 75 percent stake in the former European Cup runners-up from Gulf Finance House in 2014, but has described his tenure as a "nightmare" after the Football League banned him over a tax conviction in Italy.
Results on the pitch have also failed to materialise with the well-supported club, who were relegated from the Premier League in 2004, now 17th in the Championship (second tier).
Since taking over at Leeds, Cellino has sacked five managers and is currently appealing against a Football League ban.
He got the nickname "coach eater" after going through 36 of them in 22 years while he was owner of Italian club Cagliari.
(Reporting by Shravanth Vijayakumar in Bengaluru; editing by Ken Ferris)
