Punch Taverns, Britain's biggest pub company, has dismissed suggestions that it might agree a property deal with Robert Tchenguiz as the price for securing the entrepreneur's backing for its proposed £11billion merger with Mitchells & Butlers (M&B).

Mr Tchenguiz, who has a 23 per cent stake in M&B, had his hopes of sealing a property deal with the All Bar One operator dashed by effects of the credit crunch and analysts had suggested that he might use his stake to force Punch to consider a similar transaction.

Giles Thorley, Punch's chief executive, dismissed the idea last night. “I doubt it, not at this stage,” he said.

Mr Thorley said that he had other means with which he hoped to win the support of the entrepreneur. “As the biggest shareholder, he would benefit most from the merger synergies,” he said. “Hopefully he regards me as someone who is proactive on shareholder value.”

The approach from Punch came after the decision by M&B last week to close the hedging facility taken out before its aborted property joint venture with Mr Tchenguiz. M&B lost £391million on the hedge, which led to the resignation of Karim Naffah, its finance director, and prompted it to launch a strategic review.

Punch, Britain's biggest pub company, confirmed yesterday that it had approached M&B about a merger that would create a business with about 10,500 pubs and produce estimated synergies of £50million. M&B shareholders would own 50per cent of the enlarged company and receive a £175million cash sweetener equivalent to about 43p a share.

M&B said that it had received the Punch proposal, alongside “expressions of interest from third parties”. Private equity firms, including CVC Capital Partners, TPG and Cinven, are understood to have contacted M&B. Lydian Capital, an investment vehicle backed by the racing tycoons John Magnier and JP McManus, is also believed to be monitoring events.

Despite the strong interest, analysts believed that the credit crunch could limit the ability of private equity-backed bidders to secure funding. Mr Thorley agreed with that argument, but added: “If a knockout bid comes in, that's life.”

Under Punch's proposal, Mr Thorley and Phil Dutton, his finance director, would retain their roles, with Tim Clarke, M&B's chief executive, becoming non-executive chairman and Peter Cawdron, Punch chairman, becoming deputy chairman.

Industry insiders expressed incredulity at the prospect of a role for Mr Clarke. One rival claimed: “Tim and Giles absolutely hate each other.”

Mr Thorley insisted that he had no problem with Mr Clarke and that he was keen to tap into the management talent at M&B. “Tim adds value and the M&B operational team clearly adds value,” he said. “I think they're great operators.”

Mr Thorley played down the chances of problems getting the deal past competition regulators, pointing out that Punch previously had owned more than 11,000 pubs. Analysts believed that to satisfy local market dominance issues, it may be forced to sell up to 300 pubs.

A further 200 pubs probably would be converted from managed houses to tenancies.

M&B shares rose 16p to 466p while Punch fell 46p to 667p.

Britain’s biggest pub companies

Punch Taverns 8,500

Enterprise Inns 7,800

Admiral Taverns 2,700

Greene King 2,600

Marston’s 2,300

S&N Pub Enterprises 2,200

Mitchells & Butlers 2,000

County Estate Management 900

Welington Pub Company 850

JD Wetherspoon 680

Mitchells & Butlers’ top brands

Vintage Inns 208

Sizzling Pub Co 191

Ember Inns 183

Harvester 156

Toby 117

O’Neills 68

All Bar One 39

Source: The Publican/Times databases

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