Mitchells & Butlers has failed to make the shortlist of potential buyers for the Scottish & Newcastle Retail pub estate. Rivals Laurel Pub Company and Spirit Group are understood to be through to the next stage.
With M&B having been widely seen as a favourite to win the £2.4bn auction, losing out leaves it facing the possibility of seeing a trade rival overtake it as the UK's biggest managed pub company. There has even been speculation that M&B could itself become a takeover target for whoever acquires the S&N pubs.
Pubmaster, which has been working on an S&N bid with BC Partners, also seems to have failed to make the final round of bidders.
S&N is keeping tightlipped on which of the ten or so potential bidders has made it though to the due diligence stage of the auction for its 1,450-strong estate, but is known to have wanted to whittle the shortlist down to about three.
The consortium formed by private equity companies CVC and Cinven is also understood to have gone through to the next stage.
The pubs are expected to have attracted bids of up to £2.5bn, with M&B apparently falling short of the highest offers. M&B issued a stock exchange announcement saying it is "no longer a participant in the auction process for the retail business of Scottish & Newcastle."
M&B communications director Bob Cartwright said: "When S&N came onto the market, we had to look at it, but it was always a 'nice-to-have' acquisition rather than a 'must-do' deal. We took a very disciplined approach to our bid when comparing it to our plan A, which was always to return value to shareholders through securitisation."
Asked whether a rival would now be overpaying for S&N Retail, Mr Cartwright said: "Put it this way: we look forward to competing with what will be a highly-leveraged company."
Neither Laurel nor Spirit have made any official statement, but both are understood to have been told by S&N that they are through to the next round. Laurel currently operates just over 600 pubs including the Hog's Head chain, while Spirit's 1000-plus estate includes Bar Room Bar, Two For One and the recently-acquired Tom Cobleigh chain.
S&N is aiming to complete the pub sale before the end of the year, leaving it free to focus on its expanding brewing interests.
M&B an 'obvious target' if S&N bid fails, says analyst (22 August 2003
Reuben brothers lead the pack for £2.3bn S&N Retail (11 August 2003)