Updated from 12:57 p.m. EDT

The proposed buyout of insurance company

Reliance Group

( REL) by

Leucadia National

(LUK)

is off, the New York-based companies said Friday.

The proposed $293 million deal, announced May 26, was supposed to be an all-stock swap. However, in a statement released Friday the companies said, "Leucadia has informed Reliance that it is unwilling to proceed with the previously announced acquisition of Reliance on current terms."

The companies said they are discussing alternative transactions. Leucadia, a financial services holding company, has a right to terminate the deal by July 21.

Reliance shares got slammed on the news. Reliance closed down 1/16, or 11%, at 1/2. Leucadia National finished up 5/16, or 1.3%, at 24 1/2.

Under the terms of the deal announced in May, Reliance shareholders would have received 0.11059346 shares of Leucadia common stock in exchange for each Reliance share. Based on share prices at the time of the announcement, the deal valued each Reliance share at $2.55, or a roughly 7% premium.

However, Reliance shares proceeded to plummet. Based on Thursday's closing prices, the deal would value Reliance at about $2.67 per share, or a 377% premium over its market price.

Reliance shares also took a tumble in late February following the

resignation of its chief executive in the wake of an unexpected loss.

John Keefe, an analyst at

Ferris, Baker Watts

, dropped coverage of Reliance Friday on the news. He previously had a market performer rating on the beleaguered insurance company. In the months since the announcement of the deal,

A.M. Best

, a firm that rates insurance companies, dropped Reliance's rating from A-minus to B-double plus.

"Without that A-minus rating, customers were running -- not walking -- running from Reliance," Keefe said. "It effectively put the lights out on new business."

As a result, Reliance sold the renewal rights for many of its policies to other companies while keeping the liabilities.

"Leucadia could still come through with a restructured deal, although at a lower price," he said.