Ferrovial's decision Monday sparked a steep slide in Transfield shares, as investors reacted warily to the move. It closed down 4.75 per cent at $1.70, which was well clear of the day's low of $1.46.

It is believed Ferrovial was concerned over the earnings outlook for Transfield, and in particular its growth prospects, which prompted it to stop pursuing the target.

Before Ferrovial's decision to walk, shares in Transfield had been trading well below the original offer of $1.95 in the wake of the oil price decline, which has raised concerns among some investors over Transfield's earnings outlook. At the weekend Ferrovial raised its offer price to $2, which was rejected by Transfield.

Ferrovial said on Monday it has ceased discussions with Transfield following a period of limited due diligence, during which it had been able to review some confidential Transfield data.

"Ferrovial Services has undertaken the limited due diligence available and concluded that there were a number of issues that impacted value," Ferrovial said.

"Ferrovial Services took a very long-term view on value and proposed a revised price of $2 per share, which has been rejected by [Transfield] and therefore discussions have ceased."

Ferrovial said it was a disciplined investor and would continue to investigate options to grow its business internationally.

One institutional investor said yesterday, in the wake of the collapsed bid: "We are keen to clarify what Ferrovial found after looking under the bonnet."

Along with concerns over the impact of the weak oil price on its earnings, Transfield holds two large contracts with the Department of Immigration, which are up for renewal in the second half of next year. There are concerns that even if these contracts are renewed, it will be at significantly lower profit margins.

A fund manager with one of Transfield's largest shareholders, Simon Mawhinney, of Allan Gray, said there was an "information asymmetry" between the board of Transfield and Ferrovial over the view of the value of shares in Transfield.

Allan Gray valued Transfield shares at more than $2.50, significantly higher than the revised Ferrovial offer, he said.

"We would like to know what Ferrovial has seen that produced that outcome," he said after the decision of the Spanish company not to pursue Transfield.

One broker said: "The bidder knows that investors are wanting closer to $2.20 before they will sell, so it is a waiting game."

Expectation of tighter margins on contracts held with the Department of Immigration on Manas Island and also Nauru, which are to be renewed in October, is well known, while the impact of the weaker oil price on earnings will be muted.

"Transfield has an exposure to maintenance contracts in the oil and gas sector, rather than to the capital spending end of the industry, which will insulate it from the downturn in the oil price," one fund manager said.

"It is the capital spending that will be cut. Companies still need to spend to maintain their equipment, and this can't be reduced easily."

One optimistic view of the value of Transfield shares is held by Gregg Taylor, analyst with Blue Ocean Equities, a firm linked with well-known stockbroker Brent Potts. Investors had been bruised by their exposure to the company in recent times he said, and there was a common view it would lose the Department of Immigration contract in October.

"There is a better-than-even chance of retaining that contract, amid improving margins across its business," Mr Taylor said.

The contract was worth $1.2 billion, although Transfield had won $5 billion of work over the past year at margins better than it had enjoyed previously, he said. He has a target price of $2.93 on Transfield shares.