Tui, of Hannover, Germany, said its "decision is based on the assessment that a share-based transaction at current exchange ratios is not in the interest of Tui shareholders."
"Irrespective of this, Tui AG will continue fully to exercise its role as majority shareholder in order to leverage the value potential and benefits within the Tui Group for the benefit of all shareholders and other stakeholders of Tui AG," it added.
Crawley, England-based Tui Travel, led by CEO Peter Long, confirmed an approach about a nil-premium stock offer from its parent a week ago and said the two sides were in very early talks. Tui Travel said Wednesday it's not in discussions with any other party.
Tui Travel had a market value of £3.1 billion ($4.9 billion) after the shares by midmorning Wednesday had fallen 4.5%, to 278.8 pence. The company was created through the merger of Tui AG's Tui Tourism unit and First Choice Holidays plc in September 2007. Tui Travel had 2012 sales of £14.5 billion and operates in 140 countries.
Tui AG had €18.3 billion of revenue in fiscal 2012. Aside from its holding in Tui Travel, it also has two far smaller divisions: a hotels and resorts business and a cruises unit. It also holds a 22% stake in container shipping line Hapag-Lloyd AG.
Shares in Tui AG were down 6.2% by late morning in Frankfurt at €7.41, equating to a market value of €1.9 billion ($2.5 billion), less than its subsidiary's. Tui AG chief executive Michael Frenzel will step down next month and be replaced by former Vodafone Deutschland CEO Friedrich Joussen.
Lazard's Nicholas Shott, Cyrus Kapadia and Vasco Litchfield advised Tui Travel.
Boies, Schiller & Flexner LLP hired Assistant U.S. Attorneys Peter M. Skinner, Matthew L. Schwartz and John T. Zach from the U.S. Attorney's Office, SDNY. For other updates launch today's Movers & shakers slideshow.
The Franklin, Tenn.-based company -- which had been embroiled in a struggle with an activist investor last year -- has circulated books, with first round bids due recently More video