Aerospace and defence firms BAE Systems and EADS have decided to cancel their planned merger, after talks had become stymied by political deadlock.
The move came ahead of a 17:00 BST regulatory deadline to close the deal.
It followed days of talks between the UK, French and German governments to overcome political objections.
The UK wanted its counterparts to agree to limit their influence in the merged firm in order to maintain BAE's strong working relations with the US Pentagon.
UK firm BAE and Franco-German Airbus-owner EADS had to decide by shortly after the end of the London trading day on Wednesday whether to ask the Takeover Panel for an extension to their $45bn (£28bn) merger talks.
However, our business editor said that the decision did not rule out the possibility that talks between the two companies' management might reopen in a few months time.
UK Defence Secretary Philip Hammond had been meeting his French and German counterparts in Brussels. The merger needs the approval of the UK, French and German governments.
Only the French government has a direct stake in EADS, but Germany also exerts a high degree of control through the shareholding of German industrial group Daimler. The British government is able to veto any deal through its ownership of a "golden share" in BAE.
End QuoteThere still appears to be an insuperable obstacle to the deal, which would create the world's largest defence and aviation business"
The BBC business editor said that the outlook for the deal was already looking fairly bleak on Tuesday night.
He noted that BAE's board had made it "an absolute condition for the transaction that the French and German governments should never own more than 9% each of the merged outfits, that they should not vote as a bloc and that they should not have representatives on the holding company board".
However, the key sticking point appears to have been the insistent by the UK government and the two company heads that directors appointed by the French, German and UK governments should not sit on the top board of the merged group.
He was told on Wednesday morning that Germany had dug its heels in.
The deal would have created a European aerospace and defence giant comparable in size to Boeing of the US.
But the merger talks had become bogged down by wranglings between their respective governments ever since they first became public on 12 September.
The UK government was thought to broadly back the deal, particularly as it would help to protect jobs at two factories in the UK that are owned by EADS, that manufacture wings and other parts for Airbus planes.
Even if a political agreement had been reached, the deal still faces opposition from BAE's largest shareholder, fund manager Invesco Perpetual, which said on Monday that it had "significant reservations" about the proposed merger and "does not understand the strategic logic" of the deal.
Invesco, which owns 13.3% of BAE, did not appear to be alone. More than 30% of the UK firm's shareholders have expressed qualms, the Financial Times reported on Tuesday.
Meanwhile, French media group Lagardere, who manages the French government's stake in EADS, has also claimed that the financial terms of the merger are unfavourable.
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