Shares in takeover target Transfield Services after Spanish group Ferrovial Services decided to walk away from talks following the rejection of a revised offer.
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It is believed Ferrovial was concerned over the earnings outlook for Transfield, which prompted it to pull back.
Transfield shares dived by 20 per cent to $1.47 Monday morning, after touching $1.46 earlier.
Transfield shares had been trading well below Ferrovial's original offer of $1.95 after the slump in the oil price, which has raised concerns over its earnings outlook. At the weekend Ferrovial raised its offer price to $2, which was rejected by Transfield.
Ferrovial said it had ceased discussions now with Transfield.
"Ferrovial Services has undertaken the limited due diligence available and concluded that there were a number of issues that impacted value," it said.
"Ferrovial Services took a very long-term view on value and proposed a revised price of $2 per share, which has been rejected by [Transfield] and therefore discussions have ceased."
Ferrovial said it was a disciplined investor and would continue to investigate options to grow its business internationally.
As well over doubts about Transfield's earnings outlook, the company has two large contracts with the Department of Immigration that are up for renewal in the second half of the year, and there are concerns that even if the contracts are renewed it will be at significantly lower profit margins.
A fund manager with one of Transfield's largest shareholders, Simon Mawhinney, of Allan Gray, said there was "information asymmetry" between the boards of Transfield and Ferrovial over the view of the value of Transfield shares.
Allan Gray valued Transfield shares at more than $2.50, which was significantly higher than the revised Ferrovial offer, Mr Mawhinney said.
"We would like to know what Ferrovial has seen that produced that outcome," he said.
