United Parcel Service said it would drop its 5.2 billion euro ($7 billion) bid for TNT Express on the expectation of a European Commission veto, halving the value of the Dutch delivery firm as its shares plunged in response.
The fall in the price of shares in TNT Express wiped more than 2 billion euros off the Dutch delivery firm's value.
UPS, the world's No. 1 package delivery company, had sought to buy Dutch peer and European market leader TNT Express to gain access to its network in the fast-growing Asian and Latin American markets.
The collapse of the deal is a blow for TNT Express, which has struggled to turn around in a weak European market.
It has been forced to cut capacity in Europe in response to falling demand, was hit by restructuring problems in Brazil, and is considered a minor player in China. Its chief executive quit soon after UPS made its offer.
TNT Express shares - which were briefly suspended when the market opened on Monday - fell as much as 50 percent to 4.051 euro, compared with the UPS offer price of 9.50 euro per share.
"TNT can live on as results in recent years show," said Andre Mulder, analyst at Kepler Capital, adding that its European operations could stand alone.
"But decisions will have to be made on the non-European parts. In our view Brazil can be repaired in time, looking at its position ... but for China we think TNT is simply too small and amounts would be too large to build a defendable position, so that exit looks fairly likely."
TNT said it would give an update on its strategy in due course.
Antoine Colombani, spokesman for competition policy at the European Commission, declined to comment on TNT's statement.
"A decision will be taken in due time. The decision deadline is Feb. 5," he said.
UPS and TNT Express said the Commission, the EU's executive body, had told the two companies that it is working on a decision to prohibit the proposed acquisition.
"UPS will pay TNT a termination fee in the amount of 200 million euros and will withdraw the offer," once the formal decision is taken, UPS said on Monday.
The U.S. delivery company had offered various concessions in a bid to win EU regulatory approval for its bid, including a proposal to sell warehouses and customer bases in about 15 countries, mainly in eastern Europe.
"We proposed significant and tangible remedies designed to address the EC's concerns with the transaction," Scott Davis, UPS chairman and chief executive said in a statement, expressing disappointment at the decision after months of talks.
"The combined company would have been transformative for the logistics industry, bringing meaningful benefits to consumers and customers around the world, while supporting growth in Europe in particular," Davis added.
Shares in PostNL, TNT's biggest shareholder which had been counting on using proceeds from the deal to pay investors a dividend, also plunged a third on the news.
Upon prohibition by the commission, UPS's offer condition relating to EU Competition Clearance will not be fulfilled and the company will pay TNT a termination fee of EUR 200 million and withdraw the offer, UPS said in a statement.