The American company pulled out of the pounds 450m deal to buy RAC Motoring Services after the Department of Trade and Industry said it would force Cendant to sell Green Flag, its roadside recovery business.
The RAC said it was pursuing the options of flotation or a trade sale but a spokesman admitted it was unlikely the business would obtain a value of pounds 450m as Cendant's price was dependent on synergies with Green Flag.
Kim Howells, Competition and Consumer Affairs Minister, said he accepted the view of the Monopolies and Mergers Commission that the combination of Green Flag and RAC would weaken competition.
"I also accept their conclusion that the proposed merger may be expected to operate against the public interest in that, in the supply of insured breakdown services for light vehicles, prices would be higher, service quality lower and innovation reduced compared with the situation that would otherwise exist," he said.
The AA has a 48 per cent share of the market, with the RAC having 29 per cent and Green Flag 12 per cent. No other supplier had more than 3.5 per cent.
"As these figures show, the market is highly concentrated and the merger would make it more so," Mr Howells said.
The RAC, whose chief executive is Neil Johnson, said it had been working on alternative options for realising value for its shareholders in case the Cendant deal was blocked. It said the business could be floated as early as this summer but said there were "a number" of trade and financial companies interesting in buying it.
Cendant said it pulled out because of the lost opportunity for synergies and cost savings from linking Green Flag and RAC.
Outlook, page 19