Whitbread suffered a double blow on Friday when Punch achieved the first stage of Inland Revenue clearance for its bid. The news went some way to dispelling concern that Allied Domecq shareholders would incur a big capital gains tax liability if they accepted Punch's cash bid instead of Whitbread's all-share offer. Punch is expecting final clearance this week.
Meanwhile, Whitbread shares tumbled 33p to 1,038p, meaning its bid is now worth less than pounds 2.4bn, more than pounds 300m less than the cash on the table from Punch.
Whitbread has so far maintained that it will not raise its bid. It has cited City analysts who say that combining its existing pub estate with Allied's makes the real value of the offer about pounds 3bn. However the recent fall in Whitbread's share price may leave Allied shareholders - led by Philips & Drew with about 15 per cent - with little option but to back Punch's bid.
Because Whitbread's bid is not subject to Takeover Panel rules, it is possible that the company could increase its offer without incurring the wrath of the London Stock Exchange for its previous denials.
The bitter battle between the rival bidders is also focusing on the question of regulation with both sides accusing the other of infringing the 1989 Beer Orders. Whitbread's plan is still awaiting the approval of the Office of Fair Trading, and Punch claims that its plan to demerge its breweries could leave it in breach of regulatory rules.
Whitbread in turn believes that Punch should be treated as a concert partner with Bass, which is backing its bid with a pounds 1bn investment. That situation has raised concerns among other pub companies about the potential power of their estate in combination with Bass's brewing interests. However, Punch's bid is not subject to approval by the Office of Fair Trading.
Both sides have taken out advertisements in national newspapers in a last-ditch bid to persuade Allied shareholders to back their bids.
Allied Domecq is still refusing to countenance an adjournment of its extraordinary general meeting on Friday ,when its shareholders are due to decide whether to accept Whitbread's offer for the pub estate. Allied Domecq requires a 75 per cent majority to agree the separation of its pubs from its spirits business.
Whitbread's offer would then need the approval of 50 per cent of shareholders.
Allied Domecq is eager to finalise the sale of its pubs in order to concentrate on its highly regarded spirits brands, which include Beefeater gin and Ballantine's whisky.
Punch, the rapidly growing private pub company, is eager to build on its existing estate of 1,800 pubs in preparation for a future stock market flotation. If its bid prevails, Bass intends to cherry-pick some of the pubs to add to its own estate.