Takeover Panel gives Caffè Nero deadline to bid for Coffee Republic

Caffe Nero, the coffee bar operator, was yesterday set a three-week deadline by the Takeover Panel to "put up or shut up" regarding a possible bid for Coffee Republic.

The City watchdog said Caffè Nero must either make a formal offer for its rival by 16 December or drop all thoughts of making an approach for at least six months. "No extension to this deadline will be granted, except with the consent of the Panel Executive," it added.

The move came after Coffee Republic's advisers, Deloitte & Touche, petitioned the panel to set a deadline on the grounds that the uncertainty of a prolonged offer period was damaging the group's business.

Caffè Nero, which has a 10.7 per cent stake in Coffee Republic, last week said it remained interested in acquiring its rival, despite having a £10m bid rejected as too low. Caffè Nero, which is not expected to go hostile, first approached Coffee Republic with a view to launching a takeover bid in the summer. Talks between the two have since collapsed.

Although Caffè Nero last week offered the equivalent of about 3p a share for its rival, UK takeover rules state that because the group owns more than 10 per cent of Coffee Republic, it would be obliged to pitch any bid at 4.5p – the level it paid to build up its stake. While certain circumstances would allow this rule to be waived, observers said that in this instance it was unlikely that the panel would allow a lower level to proceed.

Julian Richer, the entrepreneur behind the hi-fi chain Richer Sounds and Coffee Republic's biggest shareholder, recently threw his backing behind Bobby Hashemi, the coffee bar operator's chief executive. He called the bid by Gerry Ford, the chairman and chief executive of Caffè Nero, "cheeky", adding that it undervalued the company's future potential. Other big shareholders have criticised Caffè Nero's bid as too low, with one investor yesterday suggesting Mr Ford had "resorted to spoiling tactics".

Analysts have long viewed the over-supplied coffee bar sector as ripe for consolidation. Bar Costa Coffee, which is owned by Whitbread, claims to make an operating profit, but all of the UK's other coffee bar chains are loss-making.

Last month Coffee Republic, which has debts of about £3m, withdrew from drawn-out merger talks with Benjys, the sandwich bar chain. Its shares were flat at 2.75p, valuing the chain at just over £6m.