Shares in TUI Travel, Europe's largest tour operator, tumbled by almost 5 per cent after its majority-shareholding German parent company dashed hopes it would buy up the whole business.
German tourism giant TUI AG, which owns 56.4 per cent of London-listed TUI Travel, said it had decided against bidding for its subsidiary, just a week after the UK company announced an approach from its parent.
The proposal was for a nil-premium, all-share merger between TUI AG and TUI Travel, which would have seen the German company taking full control of the enlarged group.
"TUI AG confirms that it does not intend to make an offer for TUI Travel," the German group said in a statement, adding that a share-based transaction was not attractive at "current exchange ratios".
Jaafar Mestari, an analyst at JPMorgan, said it was likely "that the board of TUI AG received negative feedback from its investor base on the idea of crystallising the 30 per cent discount to net asset value at which the company trades". Shares of the UK business closed down by 14.1p at 278p, a 4.8 per cent decline that outweighed a 3.9 per cent jump in the share price when the potential deal was announced a week ago today.
TUI AG said that it would "continue fully to exercise its role as majority shareholder in order to leverage the value and benefits within the TUI Group for the benefit of all shareholders and stakeholders of TUI AG".
TUI Travel was created at the end of 2007 following the merger of British travel group First Choice and the tourism activities of Germany's TUI in a bid to ward off competition from internet travel agents and budget airlines.
The statement from TUI AG means that, under Takeover Panel rules, it is not allowed to make an offer for TUI Travel within the next six months. It had been given a "put up or shut up" deadline of 13 February.
Many analysts expect that the German TUI will seek to buy the rest of the UK business if its share price rises to become closer to its net asset value.