A wave of selling left the stock 48p lower at 168p, the worst performer in the FTSE 250 index. City analysts predicted that Thistle's main shareholder, the New Zealand investment giant, Brierley Investments, would have problems in finding another buyer for its 91 hotels.
"It is clearly disappointing news for Thistle and more so for Brierley which has committed itself to getting rid of these assets," one analyst said.
The owner of landmark London hotels such as the Tower Thistle and the Grosvenor said late on Monday that it had terminated discussions with a mystery bidder - believed to be Nomura - because the offer was "unacceptable".
The Japanese bank is understood to have reduced its initial offer of up to pounds 1.5bn by around 10 per cent because of recent volatility in financial markets. Nomura declined to comment yesterday.
The collapse of talks is a huge blow for Brierley's plans to sell its 46 per cent stake in the business as part of an overhaul of its European holdings. Sources close to Brierley said that the company would keep its stake in Leeds-based Thistle for the time being and was not prepared to sell at any price offered.
They added that Brierley was now working with Thistle's management on a plan to return up to pounds 250m to shareholders via a share buyback or exceptional dividend.
Sources close to Thistle said that its plans to sell 30 regional hotels were on course, with two bidders still in the running, and added that it would look to sell individual hotels in the near future.
The company wants to dispose of most of its three-star hotels in order to focus on the higher-margin four-star properties.
However, City analysts said that Thistle's attempts to sell its assets would be hampered by increasing competition in the pounds 8.8bn UK hotel industry.
"Stakis and Millennium & Copthorne have indicated they would be willing buyers of London hotels, but in all honesty [pub and hotel group] Vaux's Swallow hotels are a much better product," one City observer said. "Thistle is going to have to try hard to sell them for a decent price."