Punch Taverns, the biggest pub company in Britain, has approached Mitchells & Butlers (M&B), its embattled rival, with an £11billion merger proposal that would give the enlarged business more than one in six of the pubs in the UK.

M&B will confirm today that Punch, which has about 8,500 pubs, is among several suitors who have made an approach since it launched a strategic review a week ago under the auspices of Citigroup, its financial adviser. Over the weekend it appointed Greenhill to work alongside Citigroup.

Several private equity firms, including Cinven, CVC Capital Partners and TPG, have expressed interest. However, analysts said that the present difficulties in raising debt finance and the estimated £50million-plus of synergies available to Punch would make it hard for financial bidders to match the merger proposal.

So far, M&B has characterised the approaches as “preliminary and tentative”. However, the news that Punch had appointed Goldman Sachs as joint adviser alongside Morgan Stanley, its existing adviser, shows its determination to seal a deal. M&B has a market value of about £1.8billion; Punch is slightly bigger, at about £1.9billion. A merger would create a company with a market value of slightly more than £11billion, including debt, although the share prices of both companies have been ravaged by the smoking ban and the consumer slowdown.

Although Punch's proposal would not provide M&B's shareholders with a cash exit or a premium price, the synergies from such a deal would be expected to deliver an uplift in the value of the shares of the combined group over time. Punch's proposal is thought to involve Giles Thorley, its chief executive, and Phil Cox, its chairman, retaining their roles.

A merger of the companies was mooted in November, when some of M&B's institutional shareholders approached Punch to see whether it might be interested in a deal. Several, including Marshall Wace, the hedge fund, also have shares in Punch.

Yet the key figure in the outcome of M&B's strategic review is likely to be Robert Tchenguiz, the property entrepreneur, who, since launching an abortive bid for M&B in 2006, has built a stake of about 23 per cent in the company, mainly through contracts for difference. Some observers blame Mr Tchenguiz for M&B's woes, because the billionaire persuaded the board of the pub company to abandon its strategy of owning and managing its sites. Last year M&B and Mr Tchenguiz's R20 investment vehicle were days away from signing a £4.5billion property joint venture when the credit crunch killed the transaction.

The collapse of the deal left M&B with an unused hedging facility taken out to smooth the impact on the joint venture of interest rates and inflation. It was the decision last week to close out the hedge at a pre-tax cost of £391million that precipitated the strategic review and the resignation of Karim Naffah as finance director.

At its annual meeting on Thursday, Roger Carr, the M&B chairman, was forced to apologise to shareholders for the hedging loss, claiming that the company had been “laid low by a banking system in global crisis” and insisting that the loss should not mask the strong underlying performance of M&B in the five years since its demerger from Six Continents.

Punch is best known as a tenanted and leased pub owner, but two years ago it returned to the managed pub sector by acquiring Spirit Group for £2.7billion, outbidding Mr Tchenguiz. Of the 1,830 pubs acquired from Spirit, Punch has sold about 400 and has converted almost 700 to leases.

Including the subsequent Mill House Inns acquisition, Spirit has about 870 pubs under such brands as Chef & Brewer. If it were to acquire M&B's 2,000 pubs, it would probably reshape the estate in a similar way.

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