A PRIVATE equity grab for Flight Centre has failed to get off the ground, ending a prolonged second bid for the travel agency.

Acting on the advice of an independent expert, Flight Centre has terminated the proposed joint venture with Pacific Equity Partners, claiming the deal was inequitable and unfair.

Under the proposal, Flight Centre would have sold its operating business into a joint-venture vehicle, initially retaining a 70 per cent stake.

PEP would have initially invested $195 million in the proposed company. But, according to Ernst & Young, the deal undervalued Flight Centre by up to $500 million, given the company is expected to post a full-year pre-tax profit up to 30 per cent above last year’s result of $79.9 million.

It has also emerged that founding shareholders of the company, who control half of its shares, told the board they would vote against the move to semi-privatise the group.

Chairman Bruce Brown said shareholders were aware the transaction would be too costly.

“While the creation of a leveraged joint venture had the potential to deliver significant benefits to Flight Centre and its shareholders, it was also a highly complex and costly transaction, and the value proposition has become considerably less attractive for shareholders as a clearer picture of the costs of the transaction has emerged,” Mr Brown said.

It is the second attempt by PEP to buy Flight Centre –a $1.62 billion proposal was knocked on the head in February.

Key investor Lazard Asset Management put a stop to that proposal, claiming the $17.20-per-share offer was inadequate.

Flight Centre shares took a tumble on the news, diving $1.15 to close 6 per cent down at $18.12.