There was further bad news for Robert Tchenguiz yesterday as Mitchells & Butlers, the pub and restaurant company in which he holds a 23 per cent stake, was savagely downgraded by a Lehman Brothers analyst.

Julian Easthope at Lehman wrote in a note to investors that M&B may need a capital injection as he cut its target price from 450p to 235p.

Shares in the owner of the O’Neills, Harvester and All Bar One chains fell by as much as 17 per cent, or 63p, to 312p shortly after the market opened before recovering to close down 12½p at 340p.

However, M&B rejected the claim and said that it did not need to cut capital investment to retain its dividend payment. “These comments are without any basis and Mitchells & Butlers categorically refutes these suggestions,” M&B said in a statement.

M&B said that it had borrowing facilities to meet all of its financial requirements and did not need additional capital. It added that its financial position was expected to improve further as the group continued to generate strong cashflows. It had funding to support its existing dividend policy and investment programme.

The company said that trading continued to be resilient, with buoyant food sales, strong market share gains in drinks and continued improvements in productivity. It expected to report a robust performance at its interim results in May, by which time the group also expected to have the results of its strategic review.

M&B initiated the review at the end of January when it revealed pretax losses of just under £400 million.

The huge cash hit, equivalent to nearly two years of profits, was caused by a disastrous bet on interest and inflation rates that M&B made to secure finance for an aborted £4.5 billion property venture with Mr Tchenguiz’s R20 investment vehicle. The loss cost Karim Naffah, the finance director, his job and the company also scrapped all bonuses for executive directors.

Punch, Britain’s biggest pub company, revealed early last month that it had approached M&B about a merger that would create a business with about 10,500 pubs and produce estimated synergies of £50 million.

M&B shareholders would own 50 per cent of the enlarged company and would receive a £175 million cash sweetener, equivalent to about 43p a share.

According to the Punch proposal, Giles Thorley, the firm’s chief executive, and Phil Dutton, his finance director, would retain their roles. Tim Clarke, M&B’s chief executive, would become nonexecutive chairman and Peter Cawdron, M&B chairman, deputy chairman. Mr Clarke and Mr Thorley are not believed to be on good terms.

M&B has about 2,000 outlets, which include 208 Vintage Inns, 191 Sizzling Pub Co venues, 183 Ember Inns, 156 Harvesters, 117 Toby outlets, 68 O'Neills and 39 All Bar One sites.

Shares in other pub operators also suffered yesterday, with Punch Taverns closing down 20p at 527p, Greene King shedding 28p to end the day at 550p, Marston’s losing 10p to close at 200½p and JD Wetherspoon falling 8¼p to 240¾p.

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