Punch pulls M&B merger, keeps options open

By Marc Jones

LONDON (Reuters) - British pubs group Punch Taverns has ditched its 3.7 billion pound ($7.4 billion) merger with rival Mitchells & Butlers, raising questions as to whether anyone else is eyeing the Harvester and O'Neills owner.

M&B (MAB.L: Quote, Profile, Research) put itself up for sale in January after a property deal with tycoon shareholder Robert Tchenguiz went disastrously wrong, losing it 400 million pounds ($792 million) and costing the firm's chairman and finance director their jobs.

Punch (PUB.L: Quote, Profile, Research) proposed a 50/50 share merger plus 175 million pounds cash to entice M&B shareholders shortly after, but pulled the offer on Friday after pressure from some of its own big investors, unproductive talks with M&B and a closer look at its books.

"Preliminary discussions with, and preliminary due diligence on, Mitchells & Butlers have led the board of Punch to conclude that the terms proposed ... are no longer in the best interests of Punch shareholders," the company said in statement.

The tie-up would have created a group with around 10,500 pubs, but some of Punch's shareholders criticized the deal, which would have diluted Punch's value by as much as 25 percent according to some analysts.

Punch, which has bought its way to be Britain's biggest pub firm, said despite taking the merger plan off the table, it was keeping its options open.

It said it was assessing approaches by a number of third parties about possible transactions involving Mitchells & Butlers, with analysts speculating Punch and its partners could bid for bits of M&B if the latter decides to sell itself piecemeal.

British newspapers reported M&B as mulling smaller moves such as offloading its chain of bowling alleys, pubs in Germany or pubs with hotel rooms.