Bass, which previously said it was "monitoring" the situation, has informed institutional investors that it does not intend to proceed with a bid. The news comes as Whitbread's all-share bid has been strengthened by a sharp rally in its share price. Last week, Whitbread shares rose 87p to pounds 11.11, valuing its bid for Allied's estate at pounds 2.6bn.
Punch Taverns, the privately owned pub company, which is vying with Whitbread for the estate, has to overcome a capital gains tax liability because its offer would be funded in cash rather than shares.
However, Hugh Osmond, head of Punch Taverns, remains confident that he can trump Whitbread's bid. "We have had very solid advice about the tax question," he said.
He said that although he had held talks with Bass, there were no plans for the two companies to form a joint bid for the pubs. If Punch does come up with a counter-bid, Allied Domecq shareholders would have to decide between the offers at an extraordinary general meeting.