Hammerson has advised its shareholders to vote against the £3.4bn takeover of rival Intu.
The shopping centre owner had agreed the deal with its smaller rival in December to create a “pan-European portfolio” of retail sites worth £21bn. with plans to kick-start a £2bn development programme.
However, Hammerson’s board is now recommending shareholders reject the deal, citing the stock market’s view that the retail sector had “deteriorated” since the start of the year.
The financial strength of retailers and other commercial tenants had “weakened” over the past five months as consumer confidence dropped, the company added.
Hammerson chief executive David Atkins said: “It is clear that the heightened risks to the Intu acquisition now outweigh the longer-term benefits.”
Intu said Hammerson’s explanation was “unsatisfactory” given the buyer had reiterated its commitment to the deal as recently as 19 March.
CMC Markets analyst David Madden said: “Profit warnings are at seven-year highs, and this highlights the fragility of the retail sector.
“Mergers make sense if synergies exist, and if the wider sector is strong, but this isn’t the case in the UK commercial property industry.”
Since the deal was publicised the retail sector has suffered the high-profile collapses of Toys R Us and Maplin.
Hammerson said it was well positioned to “weather the current environment” and that it will generate better returns for shareholders through disposals and investing in “higher-growth” projects.
The company currently owns 37 shopping centres across the UK, Ireland and France.
Last month Hammerson fended off an approach from French retail property giant Klépierre, saying its £5bn offer “very significantly undervalued” the business.
The takeover moves come amid consolidation across the international retail property sector, which saw Westfield agree a £18.5bn takeover bid from French company Unibail-Rodamco last December.
Hammerson’s shares were up 2.4 per cent by mid-morning, while Intu’s were down 3.9 per cent.