The pubs group Punch Taverns today said it had pulled plans to merge with rival Mitchells & Butlers after deciding the deal was "not in the best interests" of its shareholders.
But the firm, which had been exploring the possibility of a tie-up to create a £3.7 billion pubs giant, said it was looking at joining forces with third parties to bid for the troubled firm.
Punch confirmed it had been approached by a number of groups interested in "possible transactions involving Mitchells & Butlers".
Reports today suggested that private equity groups are considering buying stakes in the group, with interest due to be revealed before today's bid deadline.
Punch said talks with third parties may lead to an offer for, or with, Mitchells & Butlers.
"Punch is assessing whether any such proposal would maximise value for Punch shareholders," it added.
Birmingham-based M&B became a takeover target after making a disastrous £274 million loss on transactions relating to a property deal it was forced to abandon last year amid the credit crunch.
The group - owner of chains including All Bar One and Harvester - has been carrying out a wider review of the business since February and is understood to have been considering selling stakes to private equity firms to shore up its balance sheet.
But the crisis in money markets is thought to have left private equity buyers struggling to raise finance for a full cash offer and some cash-strapped suitors have reportedly already withdrawn.
A merger with Punch would have cemented Punch's position as Britain's biggest pub company, with more than 10,500 sites.
Punch had originally said in February there was "substantial strategic rationale" in combining the two businesses, but made its withdrawal today after holding preliminary discussions and going over the group's books.
M&B woes stemmed from a debt-financed property joint venture it planned with entrepreneur and major investor Robert Tchenguiz.
The deal - a move to return cash to shareholders - involved approximately 1,300 of its pubs.
M&B took out an interest rate hedge to protect the joint venture against rising borrowing costs on the debt burden, but banks pulled out of the property deal following the credit squeeze.
This left M&B with mounting losses from a wrong-way bet as interest rates began to come down - on top of the difficulties caused by a tougher consumer spending environment and last year's smoking ban.
The firm's finance director Karim Naffah has also since resigned and chairman Roger Carr, who faced fierce criticism from shareholder's at the company's annual meeting in January, is to step down following the conclusion of the review.
M&B has been at the centre of mounting speculation over its troubles and was last week forced to issue a statement to refute an analyst note claiming that it was short of funds.
Pub groups have been suffering across the sector in recent months, with reports of falling since the introduction of the UK-wide smoking ban was introduced.
Laurel Pub Company - another of Mr Tchenguiz's pub interests - went into administration yesterday after the group failed to find buyers for 90 loss-making outlets.
The property entrepreneur bought back nearly 300 outlets, splitting the firm into two.