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Earlier this week its share price had lost 16,64% since peaking in December at R152.
The group said yesterday that while there were "clear strategic merits" in buying AVI, the market had deteriorated too much since the deal was mooted. The deal would have been a share and cash arrangement.
Tiger Brands said its offer valued AVI at R24 a share, R14,40 of which was cash, valuing the company at R8bn.
Bloomberg reported that AVI had its worst fall since at least 1990 after the bid was dropped yesterday. The share price dropped as much as R4,20, or 21%, to R16, the steepest fall since August 2 1990.
Tiger stock rose R3,30, or 2,6%, to R130.
Tiger Brands also said talks with AVI had not proved fruitful.
The company, which has a market capitalisation of R22bn, first said in November it had made a formal offer for AVI, which has a market capitalisation of R5,4bn.
In January, Tiger, which is home to brands such as All Gold, Albany and Koo, said it had entered into further communication with the board of AVI about its potential offer.
The AVI board was said to be considering the proposal. AVI owns brands such as Willards, Denny and Jimmy Choo.
AVI said earlier it was not prepared to let Tiger Brands conduct a due diligence study on it because it would give a rival access to AVI's information. Moreover, Tiger's proposal presented "a high degree of execution risk".
But AVI seemed to have changed its tune last month, saying Tiger had made "further formal communication" and that shareholders should exercise caution until a further announcement was made.
Tiger Brands CEO Peter Matlare said yesterday the company had decided not to pursue further discussions as market conditions continued to deteriorate.
"Despite our firm belief in the strategic rationale for the deal, a good level of shareholder support, and having secured funding for the transaction, we have come to the view that it would not be prudent to proceed given the continued deterioration in market conditions and the fact that discussions with AVI have not proven to be sufficiently fruitful."
Matlare said the group still aimed to grow organically and through strategic acquisitions.
"There are a number of attractive opportunities in the current environment which we will continue to keep under review."
He said the company had looked at the competition risks, and was confident the deal would be passed by the competition authorities, despite similarities in their portfolios.
Thulani Kunene, who led the Competition Commission's investigation into bread price-fixing -- which saw Tiger Brands fined R99m -- last year joined the food group as its compliance officer.
AVI would fit into Tiger Brands as most of the company was core grocery items, said Matlare. Tiger Brands, which held 4,6% of AVI, would decide what to do with the shares. The takeover bid made strategic sense. If the right conditions prevailed in future, the deal would again be logical, he said.
Chris Gilmour, an analyst with Absa Investments, said it was understandable that the company would pull out of the deal in the light of recent market conditions.
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