I don't see how it's sensible from the club to take the offer off the table (not that I believe they have done that).
In my opinion, it pretty much ends any good relationship with Stewart and the club. If he is the player he was, he has all the power because we didn't tie him down to a new deal when he was injured. If he isn't quite as good as he was, then he sits out him last year, potentially as an unhappy player around the squad and leaves on a free transfer.
The downside of losing our star striker of potential premier league quality is far greater than the upside of saving a few grand a week. That's a gamble by the club that could massively backfire.