Next round in pub fight

On one side is Joe Lewis, the Bahamas-based multi-billionaire who owns 23 per cent of the company and has submitted the names of four directors, including former Scottish & Newcastle executive Jeremy Blood, whom he wants to see involved in running the business.

On the other is the board's current chairman Simon Laffin, along with chief executive Adam Fowle, who went so far as to complain to the Takeover Panel that Lewis and fellow investors, the Irish tycoons John Magnier and JP McManus, were trying to wrest control of the company at the expense of the other 60,000 shareholders.

While most of those involved are playing down the prospect of a bust-up, the sourness between the board and its largest investors means spirits are likely to be high when they gather for what would normally be a largely uneventful meeting.

Richard McGuire, the Edinburgh-based former banker who represents Lewis's investment vehicle Piedmont, says he has no plan to make any "Gordon Gekko-style" speeches but admits: "It is now sadly going to be a bit of a spectacle."

The row began in November as the company was preparing to reveal its 2009 accounts. Chairman Drummond Hall was planning to step down and the company was close to recruiting a successor. Top of the list was former Asda chairman Archie Norman, a favourite of Laffin, the board's then senior independent director.

Not all were pleased about the choice of Norman. But the dispute over who would be the next chair set off an unseemly tit-for-tat which resulted in McGuire, fellow Piedmont board representative Douglas McMahon and two other board members being ousted from the board. There were claims McGuire had tried to veto the appointment of Norman and later went gunning for Laffin – which McGuire denied.

Piedmont rejected a compromise offered by the board, which would have insisted on Piedmont voting to keep Laffin. But McGuire says: "We have stated who we will not vote for, ie Simon Laffin."

Laffin then hit back that McGuire was leading the other board members. According to M&B, Denis Jackson, former Irish politician Ray MacSharry and McMahon – "appeared not to be exercising judgment independently of each other". Jackson and MacSharry represented the 6 per cent share in M&B held by Leo Fund, an Irish hedge fund. McMahon had been on the board for only a few weeks.

McGuire claims he was merely "asking questions" regarding the board's valuation of the group's 4.5 billion property portfolio. The accounts said the 2,000 properties had only fallen in value 2.3 per cent in the year, resulting in a 71 million impairment charge. Rival Enterprise Inns had found its properties had fallen in value 8 per cent during the same period. M&B's valuation took in only a proportion of the estate – a common valuation practice. But because the valuation was so out of line with the market, the board agreed the portfolio would undergo a full valuation in the new year and McGuire and the other three directors agreed to sign off the accounts.

According to McGuire, the relationship between him and the board was fine until a leak in a Sunday newspaper claimed that Lewis – through McGuire – had vetoed Norman as a candidate for chair. McGuire said he was "surprised" when the following Monday morning he, along with the three others, was removed from the board.

But Laffin was incensed. The board called in the Takeover Panel to investigate whether the so-called "Sandy Lane set", made up of Lewis, Magnier and McManus, plus several other shareholders who in total represented 50 per cent of M&B's shareholders, were acting in concert, which would have been in breach of the City code on takeovers and mergers.

The Takeover Panel cleared the group. M&B were unhappy, and several politicians got stuck in. Liberal Democrat Treasury spokesman Vince Cable wrote to Adair Turner, chair of the City watchdog, the Financial Services Authority, raising concerns about the panel investigation, even though the FSA does not regulate the panel.

Last Monday, John Grogan, chairman of the All-Party Parliamentary Beer Group, proposed an early-day motion stating "a small group of friends and minority shareholders domiciled outside the UK appear to be seeking to gain control of the company to advance their own interests at the expense of others". It was signed by 23 MPs. The Takeover Panel continues to monitor the shareholders for concert activity, but unless anyone buys more shares – which is what the panel controls – there is little that it says it can do.

McGuire admits that Lewis knows Magnier and McManus and that they sometimes play a round of golf at McManus's charity event, but he insists that this does not make for a concert party.

"Does Joe Lewis know them? Absolutely, he has known them for years. Has he ever co-invested with them? Never. There is no concert party, there never has been," McGuire insists.

On Thursday the showdown will come in the form of a shareholder vote on the proposed new directors. Lewis has proposed a team drawn up by his corporate advisers Lazard. And although the feud has got nasty, the board and the rebel shareholders agree on two of them:

John Lovering, who was until recently chairman of Debenhams, and former Hamleys boss Simon Burke. But the board is against the other two: S&N's Jeremy Blood and Mike Balfour, founder of Fitness First.

The four insist they are independent. But groups representing institutional investors, including the Association of British Insurers (ABI), have also advised rejecting Balfour and Blood, while PIRC has advised rejecting the whole lot.

But there are those who insist the firm needs new blood, and the "fab four", including Blood, who was a key supplier to M&B while at the helm of the brewing group, would make a good go of it.

"At corporate level they (the M&B board] have had a lot of mis-steps," says one insider. "If they can run the board as well as they have run the business it really has great potential for creating value."

The company has been a problem child for a few years, mainly due to a disastrous property hedge that cost upwards of 500m. The deal was part of an equally ill-fated 4.5bn pubs sale and leaseback deal with a previous shareholder, Robert Tchenguiz.

In 2008 the company showed a loss of 274m. As a result, it parted ways with chairman Roger Carr and finance director Karim Naffah. Tim Clarke, the chief executive, had also tendered his resignation but the board refused it. Then, in May 2009, Clarke, who had been seen as the "chief architect" of the firm since it separated from Six Continents in 2003, fell on his sword after the group revealed yet another 95m hit on swap losses – resulting in a 69m net loss. Since then the board has gone through a raft of changes.

"That has delayed the strategic development of the business," said a source close to the business. "Strategically they have been treading water because of the financial challenges they have been under. And culturally they haven't taken the steps forward they need to take.

"Somebody needs to cut the Gordian knot. The board and a major shareholder are at loggerheads. It needs to be sorted for the company's best interests."

No-one is willing to predict which way the vote will go. A deal could be reached before Thursday, but analysts suggest this is unlikely.

Nor is the vote likely to settle the bitterness between M&B and Lewis. Adam Fowle became acting chief executive in August and will face questions from Lewis.

"We are still investors in this company, it is still a great company," says McGuire. "Are we supportive of him (Lewis]? We have always been supportive of him, historically. But I am now questioning his motivations and actions he has taken recently and questioning his judgment."