Mitchells & Butlers (M&B), the All Bar One and Toby Carvery operator, said that it was still keen to persuade Punch Taverns to sell Spirit Group, its £1 billion-plus managed pub division, despite Punch's decision yesterday to end talks.

Punch, Britain's biggest pub company, issued a statement slamming the door on any transaction involving Spirit and M&B, but said that it may come back if M&B changes its top management or itself attracts a bid.

M&B said that it regretted Punch's decision, and added: “The board continues to believe that significant value from enhanced sales and profitability could be created by integrating Punch's managed pub business into Mitchells & Butlers.”

A Punch spokesman retorted: “Spirit is not for sale. Nor has M&B ever made an offer for it. Spirit is not available either as a solution to M&B's difficulties nor to the detriment of our shareholders' best interests.”

The mention by Punch of a change of management at M&B comes after a report in The Times this week suggesting that John Dunsmore, the outgoing Scottish & Newcastle chief executive, had been sounded out, possibly by Punch, about the M&B chief executive's role.

It is widely known that there is no love lost between Giles Thorley, the Punch chief executive, and Tim Clarke, his counterpart at M&B, and this appears to have been a significant factor in Punch's withdrawal.

Punch initially approached M&B about a full merger of the companies, but withdrew the proposal at the end of last month. Since then, it had continued to investigate the possibility of a move on M&B in partnership with private equity firms.

Last week, M&B turned the tables by announcing that it had approached Punch with a view to buying Spirit alongside a new private equity investor. It has been discussing a deal with Permira, Bain Capital and Blackstone/CVC Capital Partners.

Punch said yesterday that it had “concluded that pursuing any transaction with Mitchells & Butlers, including any transaction involving Punch's managed pub business, would not be in the best interests of Punch shareholders at the current time and confirms that all such discussions have terminated”.

Ordinarily, under Takeover Panel rules, Punch would be barred from rebidding for M&B for the next six months, but Punch reserved the right to come back to the negotiating table before then if M&B changed any of its executive directors, announced a bid from a third party or entered into any other transaction or capital raising.

M&B has drawn criticism after running up a £48 million annual pre-tax loss when it was forced to take a £391 million hit from the closure of a hedging facility. M&B had taken out the interest and inflation rate hedge to secure finance for an aborted £4.5 billion property venture with Robert Tchenguiz's R20 investment vehicle.

The loss cost Karim Naffah, M&B's finance director, his job and prompted Mr Clarke to start a strategic review of the business.

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