The global financial crisis is being blamed for the collapse of one of the biggest takeover bids in history.
BHP Billiton Ltd, the world's largest mining company, has abandoned its multibillion-dollar hostile tilt at arch rival Rio Tinto Ltd.
The company said the all-scrip takeover bid was no longer in the best interests of BHP Billiton shareholders.
However, it will still write off almost $A450 million in costs related to the bid process over the past 18 months.
BHP Billiton chief executive Marius Kloppers said recent global events and associated falls in commodity prices had altered risk dimensions.
"The greater debt exposure of the combination plus the difficulty of divesting assets have increased the risks to shareholder value to an unacceptable level," he said.
Rio Tinto spokesperson Amanda Buckley was not immediately available for comment. However, Rio Tinto boss Tom Albanese has said repeatedly the takeover undervalued the company.
Analysts applauded the decision, given the uncertainty in financial and commodity markets but expected BHP Billiton may revisit the takeover plan.
BHP Billiton was offering 3.4 of its own shares for every Rio Tinto share, with the proposal already clearing regulatory hurdles in South Africa - although with some conditions - and in Australia and the United States.
The European Commission, the European Union's antitrust regulator, was expected to rule on the takeover proposal on, or before 15 January 2009.
Vocal opposition to the merger had emerged from steelmakers in Asia and Europe amid concerns a combined entity could have enormous control over global iron ore and other resource commodity prices.
Shares in BHP Billiton closed up $A2.84 at $A26.22 and Rio Tinto shares closed $A4.10 stronger at $A63.90 on Tuesday.