A merger between Mitchells & Butlers (M&B) and Punch Taverns may - partially - be back on.

Just a few days after Punch walked away from a full-blown merger proposal between the two pub giants, M&B has come back saying it wants to make an offer for Punch's managed pubs - and that it may have found an innovative way of funding a deal.

M&B is best known for its All Bar One, O'Neills and Nicholsons chains, and some of London best-known pubs including the White Horse at Parsons Green and the Old Bull and Bush in Hampstead.

Today it admitted it has made an approach to Punch to buy its Spirit pubs arm, which includes the Chef & Brewer chain and many of the capital's best-loved locals like the Red Lion in Whitehall, which is a regular haunt of MPs.

M&B is known to be cash-strapped after the failure earlier this year of a property refinancing, but says it could fund the deal through a cash injection in return for shares accounting for up to 29% of the company from a flock of willing private equity investors.

Those firms - CVC and Blackstone working together, Permira and Bain Capital - are struggling to raise the debt to do a deal like buying M&B outright, but appear to be willing to be a minority equity investor in such consolidation in the industry.

A deal with Spirit could be the final throw of the dice for M&B chief executive Tim Clarke, who is seen to be in the last-chance saloon with his major investors, such as the 23.5%-holding property tycoon Robert Tchenguiz.