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Punch Taverns and Mitchells & Butlers (M&B) have confirmed rumours of a possible merger between the two pub companies in statements today.

In the deal proposed by Punch, each would own 50 per cent of the merged company, worth £3.7 billion, while M&B shareholders would receive a cash payment of £175 million.

"Punch believes the terms and structure of the combination are compelling to both Punch and Mitchells & Butlers shareholders and that there is substantial strategic rationale in combining the two businesses," the company said in a statement.

"Punch believes that its proposal is attractive in terms of value, speed and deliverability."

With a total of 10,500 sites, the merger would create the UK's largest pub company and comes after M&B revealed a £274 million hit to its bottom line last week on property losses.

The company's finance director resigned after the poor performance.

Birmingham-based M&B has seen its shares plummet nearly 40 per cent during 2007, with profits stretched thin by low consumer confidence and the smoking ban.

Investors appear excited about the Punch proposal. Shares of M&B have climbed nearly five per cent to 472p in morning trading today, while Punch has added close to two per cent to 726p.