US hedge fund QVT Financial believes that should Burton-based Punch Taverns and troubled Birmingham group Mitchells & Butlers merge, the entire entity would still be undervalued.
QVT fund manager Lars Bader said: "If it did happen - I'm against it happening - the total package is still too cheap."
QVT revealed that it has taken its stake in Punch to 8.11 per cent, with Mr Bader arguing that the UK's leading pubs group is trading at just seven to eight times earnings when it should be valued at 12-13 times.
"Yes, it's a bit geared, yes there's a smoking ban and the consumer is feeling less frisky but we are only talking about few per cent hit to earnings," he said, adding that Punch's cash flow and position in the pubs sector should command a premium rather than a discount.
Mr Bader refused to be drawn on whether QVT will continue to build its stake in Punch.
"It depends on what the market does and what other relative opportunities there are," he said. "I don't have a firm view on that, each day I look at the valuation and act accordingly."
Mr Bader has talked to Punch chief executive Giles Thorley and voiced his dissatisfaction with the proposed terms.
Punch has proposed a 50/50 merger with M&B, sweetened with a £175 million cash payment to M&B shareholders - equal to some 43 pence a share. It believes there are opportunities for operational synergies between the two groups, which some analysts have estimated at up to £90 million.
M&B has said it is giving careful consideration to the proposal along with other approaches, believed to have come from a number of private equity groups including TPG, CVC Capital Partners, Cinven and Apax.
The owner of the All Bar One and Harvester chains announced it was pursuing a strategic review of the business after it unveiled pre-tax hedging losses of approaching £400 million.