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Last Updated: Monday, 4 February 2008, 09:27 GMT
Punch unveils M&B merger proposal
Drinks being served at All Bar One branch
M&B owns the All Bar One and Harvester chains
Punch Taverns, the UK's biggest pub firm, has confirmed a merger proposal for rival chain Mitchells & Butlers.

The all-share offer would see Mitchells & Butlers shareholders own 50% of the enlarged company, and also receive a cash sweetener of 175m.

But Punch said it was an initial plan and there was "no certainty that any offer will ultimately be made".

Mitchells & Butlers, which owns the Harvester chain, is vulnerable after a failed property deal cost it 274m.

Shares in Mitchells rose more than 5% to 473.2 pence, while Punch shares fell 2.6% to 695p.

Up for sale

Punch said there "was substantial strategic rationale" in combining the two businesses, "including opportunities for operational synergies in the managed pub business and through a reduction in central costs".

M&B said it would consider the proposals put forward by Punch along with others.

M&B, which also owns the All Bar One chain, effectively put itself up for sale last week, after plans to sell most of its pubs to a debt-financed joint-venture with property tycoon Robert Tchenguiz fell through.

Analysts said the deal could face obstruction from Mitchells' shareholders.

"This is confirmation of a long standing suggestion - pretty sensible, deliverable and quick - but does not offer what M&B's shareholders most want - namely a profitable exit," said Blue Oar analyst Mark Brumby.

Other interest

M&B's weakened financial position has said to have attracted a lot of interest, including from private equity groups Blackstone, Cinven, TPG and CVC.

M&B's largest shareholder, Mr Tchenguiz, may also launch a bid for the firm.

He currently has a 23% stake.

A merger of Punch and M&B would create a pub giant worth around 3.7bn, with more than 10,500 outlets.

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