EchoStar, which is chaired by billionaire entrepreneur Charlie Ergen, said it would not table a formal offer for the UK satellite operator after the FTSE 250 company rejected a 532-pence-a-share cash and shares bid that valued its equity at about 2.45 billion pounds ($3.25 billion)
The announcement came less than half an hour before a 1700 London time (1600 GMT) deadline for EchoStar to either make a firm offer for Inmarsat or walk away.
"The board remains highly confident in the independent strategy and prospects of Inmarsat, given our track record, unique capabilities, differentiated market position and strong channels to market," the British company said in response to EchoStar's withdrawal.
The UK's Takeover Panel, which regulates merger and acquisition activity in Britain, had fixed a deadline for EchoStar after Inmarsat announced last month it had spurned a takeover approach from its U.S. rival at an undisclosed price.
With the deadline just hours away, EchoStar, whose founder Ergen was once a professional gambler, ramped up the pressure on Inmarsat by revealing on Friday morning it had made a second informal bid in private on July 3.
Inmarsat's board had rejected the 532 pence-a-share approach the next day, EchoStar said earlier on Friday. Including Inmarsat's convertible bonds, the proposal had valued the group as a whole at 3.2 billion pounds.
But while EchoStar publicly urged the London-based business to seek a deadline extension from the panel so the two sides could reach a deal based on the latest bid, the UK group responded later on Friday morning by arguing the proposal "very significantly undervalued Inmarsat and its standalone prospects."
EchoStar's subsequent decision to withdraw sent Inmarsat's shares down 8 percent to close at 483.8 pence amid disappointment from some traders who had anticipated a bidding war for Inmarsat. The announcement last month of EchoStar's original approach had sent Inmarsat's shares surging.
However, despite expectations of a counterbid, another suitor did not make an approach to rival EchoStar. While France's Eutelsat Communications had said on June 25 it was considering an offer for Inmarsat, it swiftly ruled itself out less than 24 hours later, after its shares fell on news of its possible bid.
Analysts had speculated that Inmarsat was especially attractive to EchoStar because the British firm's U.S. spectrum looked particularly complementary to the frequencies owned by EchoStar's sister company Dish Network Corp, the U.S. satellite television group also chaired by Ergen.
But analysts agreed with Inmarsat's board, which is led by chairman Andrew Sukawaty, that EchoStar's second bid was not high enough.
Wilton Fry, of RBC Capital Markets, described the proposal as "low ball" and estimated EchoStar could potentially get 10 pounds-a-share of spectrum value from Inmarsat. Berenberg also said the U.S. company appeared to be trying to buy Inmarsat "on the cheap".
EchoStar's shares rose 1.9 percent after its withdrawal.
Founded in 1979, London-based Inmarsat was set up by the International Maritime Organisation as a way for ships to stay in communication with shore and make emergency calls.
Since then, the group has become a private company, providing communications for the British armed forces, aircraft, ships, broadcasters, aid agencies and governments through its fleet of 13 satellites.
Colorado-based EchoStar supports similar organisations including the U.S. government with its 23 satellites.
If the American firm had succeeded in agreeing a deal with Inmarsat, a takeover would have been closely scrutinised by the British government because of the UK company's position as a strategic asset.
Under the Takeover Panel's rules, EchoStar now cannot revive its approach for six months, unless another suitor makes an offer for Inmarsat; the British company invites the U.S. firm back; or there is "a material change of circumstances."
(Reporting by Kate Holton and Ben Martin; Editing by Keith Weir and Mark Potter)
By Ben Martin and Kate Holton