European Leisure, which agreed an all-share £65 million sterling (€82.5 million) merger with Allied Leisure, has turned down a counter approach from rival leisure group Waterfall Holdings.

Welcoming the European Leisure statement, Allied said following the completion of the European Leisure/Allied merger, the enlarged firm would enter into merger talks with Waterfall.

European Leisure confirmed that it had received "an indicative proposal" from Waterfall but said "it cannot recommend the proposal" to its shareholders. However, European Leisure said in order to evaluate the proposal fully, its board will be "investigating further information to be provided by Waterfall and will be providing additional information on European Leisure".

The indicative offer has not been disclosed but is understood to have offered the European Leisure shareholders better terms. The move has been seen as an attempt to thwart the agreed merger between European Leisure and Allied. European Leisure bought an 18.5 per cent stake in Waterfall last year in what was seen as a prelude to a take-over bid. But Waterfall at the time said it was "not seeking to be taken out".

The proposed merger of European Leisure and Allied would give European Leisure shareholders a 52 per cent stake in the amalgamated group. However, European Leisure would cede management control to Allied.

Allied noted the strengths the amalgamated group would have. These were cited as a market leader in cue sports and tenpin bowling and its strong cash generation. Also, the combined group "will have the ability to make substantial investment in its growth businesses".

The first closing date of the recommended merger offer is Thursday.