Punch Taverns still pushing for M&B deal

Punch Taverns remains confident it can convince the Mitchells & Butlers (M&B) board, the managed pub group's investors and its own shareholders of the merits of a merger between the two companies.

Despite worsening conditions in the financial markets - and the view that a growing number of Punch shareholders are averse to the merger proposal - the UK's largest pub operator believes it can do a deal.

"There is no less desire to do a deal and we are still determined to do it," said a spokesman for the group. "Yes, the [financial] landscape has changed, but we are the best options for shareholders."

Punch's comments came as reports suggested M&B was looking to private equity firms to inject cash into the business in return for shares at a later date.

However, the City was less bullish about the prospects of a deal between Punch and M&B.

"It is looking increasingly unlikely. What's in it for them?" asked one analyst, who wanted to remain anonymous.

"M&B's shares have fallen from 460p to 360p in two weeks. There's significant earnings dilution in there now. Strategically M&B is all over the place and confidence has gone."

Meanwhile in an investment note Panmure Gordon's Douglas Jack agreed that up to a third of Punch shareholders were becoming "less enthusiastic" about a deal.

However this should not be read as a victory for M&B, Jack added. "The outcome of M&B's strategic review is unlikely to compensate shareholders for efforts to block corporate activity."

With its "heavy reliance" on pub restaurants M&B was "vulnerable to consumer weakness, competitor food price discounting, higher costs and the recent duty increases", Jack added.

A spokeswoman for M&B declined to comment on the cash injection reports.