London-based privately owned sandwich bar operator Benjys said on Wednesday that its merger talks with Coffee Republic had ended due to differences over the valuation of the struggling coffee house chain.
Benjys, 65 per cent owned by private equity group ECI Ventures, had been in talks over a £10 million (€15.9m) merger which would have seen it own a majority of the enlarged group and then sell off some surplus coffee shop sites.
The talks had dragged on since the summer but finally broke down over valuing Coffee Republic in an all-share deal which was seen as a reverse takeover by Benjys, giving the sandwich shop chain a UK stock market listing.
Coffee Republic, the smallest of four nationwide chains with some 107 shops, had come under strain in a sector where none of the four make money, but two of its biggest shareholders did not want to sell out at rock bottom prices.
Julian Richer, the millionaire founder of audio equipment retailer Richer Sounds who has a 18 per cent stake, did not want to be panicked into a fire sale, while rival Caffe Nero Group was unhappy about the merger terms after it built up a "strategic" 10.7 per cent stake.
Coffee Republic is already looking to sell shops as it comes under pressure from its rival chains Whitbread-owned Costa Coffee, US Starbucks Caffe Nero, while it is looking to rent space to Easy Group, the vehicle set up to extend the Easy brand made famous by airline easyJet.
Coffee Republic announced earlier on Wednesday that it was to move to London's secondary Alternative Investment Market (AIM) from the main listing market to cut costs, while industry sources said it had the support of its banks until at least March.
When Coffee Republic's co-founder and chairman Bobby Hashemi stepped down from executive duties in April 2001 the shares stood at 24 pence, but by the time he returned as chairman this May the shares had slumped and they closed on Wednesday at 2-3/4p, valuing the group at around £6 million.
Benjys said it still aims to expand nationally, and it is currently looking at a number of different sites.
"The Coffee Republic deal certainly made sense and our strategy of injecting our profitable business into their portfolio of sites would have neatly addressed the issues that their business faced," said a Benjys spokesman.