The finance director of Mitchells & Butlers, the owner of the All Bar One and Harvester chains, fell on his sword yesterday after the company revealed it has been hit to the tune of £274m following a failed property deal.
The chief executive, Tim Clarke, offered his resignation, alongside that of the finance director, Karim Naffah, but this was rejected by the board.
Potential buyers, trade and private equity, are understood to be already circling the company.
Mr Clarke will be kept at the helm while the company conducts a strategic review of the business which could lead to a sale or further consolidation in the industry. The deputy finance director, Jeremy Townsend, has been promoted to finance director.
The problems for M&B began last summer, when, just days from separating its pub estate into a property joint venture with the entrepreneur Robert Tchenguiz, in order to create more value for shareholders, the global credit crunch took hold.
The partners had both already put in place separate interest rate and inflation hedges to protect their plans as part of the requirement of its banks to underwrite the deal.
With funding withdrawn from the banks, M&B held on to the hedge positions until yesterday, when it announced it was closing them down, leading to the heavy losses. As a consequence, none of the company's executive directors will receive a bonus for 2007.
"We had the misfortune that we had the hedges in place and in the few days before the business was executed the credit crunch intervened," Mr Clarke said.
But critics had questioned the wisdom of spinning off the property portfolio even before the credit squeeze. Selling off the properties would have left the pub operating company paying increased rents in an uncertain climate as the effect of the smoking ban takes hold.
Mr Tchenguiz upped his stake in the companyto 22 per cent earlier this week, triggering speculation that he is keen to make a deal. A tie-up with one of the other major industry players, such as Whitbread or Punch Taverns, remains a possibility. One source said that shareholders in the group are likely to welcome any offer that allows them to realise value.
However, a cash offer would have difficulty getting off the ground in the current climate, he added.
Analysts at KBC Peel Hunt advised investors to buy into the stock, saying the review "could include a sale, merger, or taking the company private ... With the removal of the hedge distraction, we believe this is now a strong buying opportunity".
Despite all the turmoil at the company, operationally Mitchells & Butlers has been performing well in a tough environment, and has been taking market share from some of its competitors which have less of a focus on their food offer.
Douglas Jack, at Panmure Gordon, said: "M&B appears to be in a mess, but actually it is getting its house in order, albeit six months too late."
The group reported like-for-like sales growth of 0.7 per cent for the first 17 weeks of the financial year, with a rise of 0.2 per cent in the past 10 weeks. But pubs in Scotland, into their second year of the ban, saw like-for-like sales up 4.4 per cent.
This has been a challenging winter for the industry, half a year into the ban, and at the onset of a consumer slowdown which is forcing many punters to tighten their belts. Beer volumes have been falling and, with supermarkets offering cut-price deals, many drinkers are preferring to take their favourite tipple at home.
Last week, Wetherspoons reported a 3.2 per cent drop in like-for-like sales in the 11 weeks to 13 January, while Punch Taverns, the UK's biggest pub company, saw a fall of 0.8 per cent at its leased sites and 2.2 per cent at its managed businesses. Both companies blamed the smoking ban and said they were confident sales would recover as more customers were attracted by dining in a smoke-free environment.
The drinks industry has been investing in premium beverages in order to make up the shortfall from falling volumes. Young's has ditched Stella Artois in favour of Heineken, Amstel and Pilsner Urquell, which is being seen as a drive to bring more products into its estate.
Greg Mulholland, the Liberal Democrat health spokesman, is fighting back against moves by pubs to phase out smaller 125ml glasses of wine. If the Bill he plans to table in the Commons, which has cross-party support, were successful, it would make all licensed premises have to offer the 125ml measure alongside the larger measures of 175ml and 250ml.
The MP for Leeds North West said: "What I am proposing is a very simple, sensible and effective measure that would help tackle a key public health issue at the same time as increasing consumer choice."