It depends on a number of factors, namely the tone / emphasis you wish to convey. If you are suggesting negotiations were made on the recipients behalf, but an agreement could not be reached (without inferring failings on the side of the party representing the recipient), why not say:
"I regret to inform you that "name of company" is currently focussed
on identifying those students with a background in CSE/IT. It is with
regret that negotiations in this instance unfortunately failed to
reach an agreement"
As noted in the comments, the use of the word work
suggests that the attempt / process of negotiation failed and not the outcome, as such I would tend to avoid it.
With that in mind, is it even necessary to mention negotiation happened at all?
Unfortunately it is with regret that the company has decided not to
pursue your application further at this time, having decided to only
consider those students with a background in CSE/IT.
..unfortunately following negotiation an agreement could not be reached
? – SW4 Aug 1 '14 at 15:23