Caffè Nero still after Coffee Republic despite knockback

The coffee bar operator Caffè Nero remained upbeat about its chances of acquiring its rival Coffee Republic despite having a takeover approach knocked back.

Caffè Nero, which has a 10.7 per cent stake in Coffee Republic, said it was still "interested" in a deal and was "disappointed" at the response to what it "considers a fair value" for the company.

Analysts have long been braced for consolidation in the over-crowded coffee bar sector where even the US giant Starbucks makes a loss.

The approach, made last week, is understood to have valued Coffee Republic at about £10m, or 3p a share, including debt. It would have created a company with about 200 outlets, still third in size behind Starbucks and the Whitbread-owned Costa Coffee. Coffee Republic's shares jumped 1p to 2.75p.

Meanwhile, Coffee Republic, which is in the middle of a strategic review ordered after merger talks with the sandwich bar operator Benjys broke down, said it had agreed to sell 13 leasehold sites to Starbucks for up to £2m.

Caffè Nero, which like its rival is still loss-making, is expected to be interested in about 70 Coffee Republic sites but Gerry Ford, Caffè Nero's chief executive, is understood to be unwilling to mount a hostile bid.

Industry sources said last night it was unclear whether under Takeover Panel rules Caffè Nero's bid approach was bona fide. As a shareholder, takeover rules state that any bid must be made at the level at which shares were last bought in the market. Caffè Nero paid 4.5p a share for its stake.

However, there are certain conditions that allow the bidder to offer a lower price – such as if the target company's prospects "materially change".

Since Caffè Nero acquired its stake, Coffee Republic's debt has mounted to about £3m and it has agreed to dispose of about a quarter of its sites.