Expectations that Morgan Grenfell Private Equity had won the struggle to buy Whitbread's 3,000-unit pub estate were knocked back last week when Punch, one of the other bidders, suddenly declared it had a legal armlock on MGPE.

Early last week Dresdner Kleinwort Wasserstein, the investment bank acting as auctioneer for the Whitbread pub estate, informed the other bidders it had entered exclusive talks with MGPE, which had put in a £1.65bn bid.

However, Punch then sent a solicitor's letter to Deutsche Bank, parent of Morgan Grenfell Private Equity, threatening to invoke a "non-compete" clause that Deutsche Bank signed two years ago as a shareholder in Punch.

Punch has already used a similar clause to prevent Luke Johnson, boss of the Belgo group and a former partner of Punch's chief executive, Hugh Osmond, from getting involved.

MGPE, which is being financed by Lehman Brothers and Dresdner Kleinwort Wasserstein, was hoping to sign a deal quickly after putting in the highest bid. Both Nomura and Punch are understood to have bid £1.6bn. Candover was the underbidder at £1.55bn.

Punch then told MGPE that a takeover of Whitbread's tenanted estate would be a breach of a three-year "non-compete" agreement another Deutsche Bank subsidiary, DB Capital, signed in 1999.

Osmond had already expressed surprise that MGPE, with no previous exposure to the British pubs scene, felt it could bid so much. He said: "I am extremely surprised that those in the pubs business with synergies to gain can't get to a price that a new entrant can." He said MGPE had either gone mad or had not done its homework.

Punch, which already owns 5,150 pubs, has access to cheap capital, could gain synergies and already had experience of securitising pub estates.

Whitbread has denied reports that MGPE has been named as the preferred bidder for its 3,000 pubs and bars and has insisted that press reports are only speculation.

The company said that it is in the final stages of closing the deal and expects to make an announcement at the end of this month.