The teams had been in discussion about the 2007 National League Cy Young Award winner for the past several weeks, with those talks amplified after the two arrived at the Bellagio for baseball's annual feeding frenzy, the Winter Meetings.
In the end, though, the Cubs wouldn't bite.
"After giving it a lot of thought, at the end of the day, I felt the volume of talent going back and taking on that entire contract [$63 million over four years] was not the right decision for the organization at the time," Hendry said.
"As the week went along, I could tell that Kevin wasn't going to lower his stance on the talent, which is his right. If he has the intention of keeping Jake, then he has the right to hit the best deal he can or he has the option to keep him."
The Padres had enlisted the help of a third team, Philadelphia, and maybe a fourth team as well as a package of players from the Cubs -- thought to include third baseman Josh Vitters, a former No. 1 Draft pick, -- but that, ultimately, proved too rich for the Cubs to part with.
"He said he's got other things going on. I respect his position," Towers said of Hendry.
So where do the Padres turn now?
"We need to start moving forward," Towers said.
What that means is undefined, because it wasn't immediately known if the Padres would look to ask Peavy and his agent, Barry Axelrod, if the right-hander would consider other teams and possibly waive his no-trade clause.
The other option, of course, would mean hanging onto Peavy and the $11 million that he will make next season, which would represent a good chunk of a reduced payroll that might be in the neighborhood of $40 million.
Towers plans on speaking with Padres chief executive officer Sandy Alderson when he returns to San Diego next week and figures to have a conversation with Axelrod in the next few days as well.
"I would imagine when we get back to San Diego we'll sit down with Sandy and talk to Barry and see how we want to handle it moving forward," Towers said.
Axelrod told MLB.com on Thursday that he was disappointed with the latest development, as was Peavy since he has been in the mindset for the past month or so that he was, in all likelihood, going to be traded.
First a deal with the Braves couldn't be worked out. And now a deal with the Cubs fell through.
"I want to make it clear ... Jake was never the one who wanted to leave San Diego," Axelrod said. "But it is human nature to start looking ahead and be in the mindset of what's next and what kind of preparations am I going to have to make [after a trade].
"Then to have the carpet jerked out again. ... I don't see where you go from here."
It's unlikely the Padres will revisit discussions with the Braves, a team they talked with for two months before Atlanta general manager Frank Wren moved on and traded with the White Sox for pitcher Javier Vazquez last week.
Because the Braves traded shortstop Brent Lillibridge in that deal, they no longer have any intention of dealing shortstop Yunel Escobar, who is considered one of the best shortstops in the National League.
Wren's current focus is free-agent pitcher A.J. Burnett and he has said he won't begin a new pursuit of Peavy unless the Padres initiate the talks with the understanding that the Braves will not offer the package they did a month ago, when Escobar was in the deal.
The Angels could be a match. An official from that team labeled it a "long shot" on his way home to Southern California, but said the two clubs will continue to discuss names and see if they can come up with the right combination of players for Peavy, who would give the American League West champions one of the best rotations in Major League Baseball.
The Padres are believed to have interest in infielder Brandon Wood and pitchers Nick Adenhart and Kevin Jepsen in a package for Peavy.
Peavy has the contractual right to veto a deal and Axelrod has stated that his client would like to remain in the National League.
But the Angels are geographically desirable -- Angel Stadium is about a one-hour drive from Peavy's home in North County -- and the intensely competitive Mobile, Ala., native yearns to pitch for a contender.
But at this point, Axelrod is preparing for Peavy to start the season as he ended it -- as the No. 1 starter in the Padres rotation.
"I don't see how they are gong to make a trade," Axelrod said. "You're asking a team to take on a pretty good-sized contract, a long-term commitment and what you're asking in return is a lot of players who are not getting paid much and are Major League-ready.
"I don't see where you go from here. If they want to come to us with a trade, that's fine. But we're done giving input. It's up to them to decide what they want to do."
Corey Brock is a reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.