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Pub operator Punch Taverns has withdrawn its takeover offer for rival chain Mitchells & Butlers as the terms "are no longer in the best interests of Punch shareholders".

Punch said preliminary discussions and due diligence led the board to conclude the offer made on February 1st was no longer viable.

The company had suggested a merger where Punch and Mitchells & Butlers (M&B) shareholders would each own 50 per cent of the merged company, and in addition, M&B shareholders would receive a cash payment of £175 million.

Punch said it has been approached by a number of third parties in relation to a possible buyout of M&B, which the company is considering.

Several private equity firms have previously expressed an interest in M&B, including Cinven, Apax Partners, Terra Firma, Blackstone, TPG and Kohlberg Kravis Roberts.

M&B shares dropped by more than four per cent to £3.15 in early trading.

Birmingham-based M&B, owner of All Bar One, O'Neill's and Browns, lost £274 million last year on a property deal it was forced to drop due to the credit crunch, leaving it open to takeover offers.

Punch is already the biggest pub group in Britain and a merger with M&B would have increased its portfolio to more than 10,500 sites.