Caffe scraps Coffee Republic bid

Caffe Nero may launch a fresh takeover attempt

The UK's third-biggest coffee bar chain Caffe Nero has called off an attempt to buy its ailing rival Coffee Republic.

Caffe Nero blamed a lack of co-operation on Coffee Republic's part, saying the company had refused to take part in merger discussions.

Caffe Nero, which has been pursuing its rival since the summer, is reported to have raised its offer to 4.5p a share, valuing the company at £13m ($20.6m), after an earlier bid was rejected as too low.

The end of the takeover attempt postpones the long-awaited consolidation of the British coffee bar industry, where stiff competition and high operating costs have prevented most companies from making money.

Sales falter

Coffee Republic, the smallest of the four coffee bar chains that operate nationally, has been seen as a likely takeover target since it reported slower sales in January this year.

Its firm resistance to Caffe's bid is believed to reflect an improvement in its sales performance in recent months.

Caffe, which already owns about 10% of Coffee Republic, said it was unaware of what alternative strategies the firm had for increasing returns for shareholders.

It described its offer for Coffee Republic as "full and fair," and said it may make a fresh bid if a second potential buyer emerges.

Coffee Republic shares were down 0.25p at 2.5p in mid-afternoon trade, while Caffe Nero was unchanged at 22.5p.

Four-way battle

The UK coffee bar industry is dominated by US-owned Starbucks and Costa Coffee, part of the Whitbread leisure empire, with Caffe Nero and Coffee Republic bringing up the rear.

However, saturated markets and the hefty cost of renting High Street premises has eaten into profit margins, with just one chain - Costa Coffee - claiming to make money,

Caffe Nero lost £1.5m in the year to late May, down from £1.9m the year before, on sales of £26.6m