Embattled pubs group Mitchells & Butlers today confirmed talks to buy the managed pub business from its rival and former takeover suitor Punch Taverns.
Mitchells will consider selling a minority stake in its business in order to fund the deal, after receiving a number of approaches from buyout firms.
But the troubled All Bar One and O'Neill's pubs operator reportedly faces opposition from key shareholders over the plans.
Property billionaire Robert Tchenguiz, who is thought to own a 23.5% stake in the group, is concerned that a merger with Punch's Spirit arm could significantly undervalue Mitchells' property portfolio, according to The Daily Telegraph.
Mitchells has been under significant pressure since a failed property deal with Mr Tchenguiz last year, which left the group with a £274 million loss and a plummeting share price.
The debt-financed joint venture would have involved approximately 1,300 of its pubs and returned substantial cash to shareholders, but was shelved amid last summer's credit crunch and has since seen the group thrown into the takeover spotlight.
Mitchells said today a deal to buy Punch's Spirit pub arm would help revitalise the business "through enhanced sales and profitability".
Punch had explored the possibility of merging the entire business with Mitchells to create a £3.7 billion pubs giant, but abandoned the plans late last month, claiming it was "not in the best interests" of its shareholders.
However it hinted that it was eyeing other possible tie-ups with third parties that it said may lead to an offer for, or with, Mitchells.
Its Spirit pubs division would add around 869 pubs to Mitchells estate.
The managed pub business, which includes brands such as Chef & Brewer, Wacky Warehouse and Two for One, is estimated by analysts to be worth around £1.15 billion.
Mitchells' has a 2,000-strong pub estate and is looking to merge the Spirit business under its own branding, which includes Ember Inns and Vintage Inns.
Last week, Mitchells said buoyant food sales had helped boost its results, despite it facing the twin challenges of the smoking ban and slower consumer spending.
The group reported a 4.8% increase in like-for-like food sales in the 27 weeks to April 5, which helped to offset lower beer sales, and led to a 0.6% increase in overall sales during the period.Reuse content