Newcastle wanted to re-sign Andros Townsend last month
Newcastle manager Rafa Benitez wanted to bring Townsend back to the club on transfer deadline day.
A £2million loan had reportedly been set up, with a £13m fee to be paid to Crystal Palace for Townsend's permanent transfer in the summer.
Newcastle boss Benitez is frustrated that the club failed to land any major deals at the end of the transfer window, with Townsend his top target.
Championship Done Deals: Every transfer in during January 2017
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I'm going to back Mike Ashley on that one
But former Newcastle owner Shepherd says the deal was bad business for the Championship side.
"Every manager wants another player," Shepherd told talkSPORT.
"Benitez is having a little moan. That Townsend deal is ridiculous.
Townsend only joined Palace from Newcastle last summer
Townsend (right) played under Benitez last season but couldn't prevent Newcastle going down
"It was one-ended and I wouldn't have done that deal. The money was all wrong.
"It was a bit open-ended one way."
Asked if he would have made the same decision as Ashley to pull out of the deal, Shepherd said: "I would have yes, I'm going to back Mike Ashley on that one."