(Reuters) - French shopping centre operator Klepierre (>> Klépierre) has abandoned a 5 billion pound bid for Hammerson, accusing the British property company of failing to provide "meaningful engagement" over a potential deal.

Shares in the London-listed company were down 10.7 percent at 464.2 pence at 1040 GMT, erasing most of their gains since Klepierre made its original approach in March. Shares in Paris-based Klepierre were up 3.9 percent.

Klepierre's decision to drop its takeover attempt leaves the company behind Birmingham's Bullring centre free to pursue its own acquisition of fellow London-listed shopping centre operator Intu Properties.

Announced last December, Hammerson's deal with Intu had been met by scepticism from Hammerson investors as it increased the company's already high exposure to a squeezed UK retail sector.

Klepierre's decision to scrap its unsolicited bid comes after its Chairman Jean-Marc Jestin met Hammerson counterpart David Tyler on Monday evening to make an improved takeover proposal of 635 pence a share, split equally in cash and stock.

Hammerson rejected the sweetened proposal on Wednesday, saying it was only a marginal increase on Klepierre's initial bid of 615p and still undervalued the company.

The increased proposal represented a premium of 45 percent to Hammerson's share price on March 16, before the French company disclosed its initial approach, Klepierre said.

The French firm's original cash-and-paper offer had been worth 4.9 billion pounds ($7 billion).

In a statement on Friday, Hammerson said it "welcomes the clarification" provided by Klepierre's announcement, while adding it continues to believe the French company's proposal "very significantly undervalued" Hammerson.

"The Board is confident in the intrinsic value of Hammerson and its prospects," Chairman David Tyler said.

CONSOLIDATION

Under British rules, Klepierre had until April 16 to make a firm offer or walk away from Hammerson, which also owns Bristol's Cabot Circus and a stake in the Bicester Village retail outlet.

"The board of Hammerson did not provide any meaningful engagement with respect to the increased proposal and, after careful consideration, Klepierre has concluded that it does not intend to make an offer for Hammerson," the French company said.

Shares in Hammerson slumped following its agreement to buy smaller rival Intu, weakness that provided Klepierre with an opportunity in March to swoop with its bid. The Paris-based company wanted to scupper the Intu deal and buy Hammerson on a standalone business.

For Klepierre, a successful acquisition of Hammerson would have given it shopping centres in the UK and Ireland, countries where the French firm currently does not have a presence.

It would have come as part of a wave of consolidation in the malls sector, as retailers grapple with competition from online rivals such as Amazon.

Hammerson, however, rebuffed the approach, saying Klepierre's bid was below its net asset value per share (NAVPS) of 776 pence as of the end of December and that it remained committed to the Intu deal.

On April 5, it bolstered its defence against the bid by hiking its NAVPS to 790 pence as of the end of March.

British retailers have been suffering as inflation-hit British consumers cut back on spending, making many investors wary of the sector.

Toys R Us UK and electronics retailer Maplin entered administration at the end of February, while shares in early-years retailer Mothercare recently slumped to an all-time low.

"Heightened M&A activity highlights that some industry participants continue to take a different view of the long-term return prospects of physical retail & leisure space relative to the equity market," Liberum analyst David Brockton said in a note.

"However, if the Intu deal does not complete, it would be a rejection of management's vision."

($1 = 0.7014 pounds)

(Reporting by Alan Charlish. Additional reporting by Ben Martin; Editing by Jason Neely/Keith Weir)

By Alan Charlish