Mitchells & Butlers is playing for high stakes in its bid for the rival Scottish & Newcastle Retail estate, according to investment bank WestLB Panmure.
The price of failure would almost certainly be M&B becoming a takeover candidate itself, warns WestLB analyst Douglas Jack.
"If S&N falls to a private equity buyer, the next logical step for the buyer would be to start looking for acquisitions to achieve economies of scale," said Mr Jack. "In that scenario, Mitchells & Butler is the most obvious target."
M&B is one of around eight potential bidders for the S&N Retail estate reported to be going forward to the due diligence stage of the auction. It is up against trade rivals including Laurel and Pubmaster, as well as a number of private equity bidder including Texas Pacific, which is working with Spirit Group, and a consortium comprising CVC and Cinven.
If M&B fails to acquire its rival, it has plans to securitise the estate and return around £400m to shareholders, However, Mr Jack said that selling the 'family silver' in terms of the freeholds of its pubs would leave its trading even more vulnerable to the up and downs of consumer demand.
He added that there are still question marks over M&B's plans for the S&N estate. "The key problem for us is that M&B's management has yet to prove that it can deliver shareholder value from the existing business, let alone integrate an acquisition the size of S&NR. However, there seems to be little else management can do to re-rate the stock."
Reuben brothers lead the pack for £2.3bn S&N Retail (11 August 2003)