LONDON (Reuters) - The biggest investor in UK mail delivery firm DX Group (L:DXDX), Gatemore Capital Management, ratcheted up its opposition to a proposed reverse takeover of John Menzies' (L:MNZS) distribution arm on Friday, saying it "grossly undervalued" the firm.
In a letter to the board of DX dated May 4 representing 18 percent of shareholders, Gatemore, which owns 11 percent of DX, said it was confident that a majority of investors which voted would reject the deal.
Citing an independent analysis of the deal, it also said it saw scope for a turnaround plan to boost DX's shares.
DX Chairman Bob Holt said that the company had the support of "key shareholders" to continue talking to Menzies and that its investors would have the opportunity to vote on any firm offer that it made.
"We continue to believe that a potential combination of DX with John Menzies' distribution division offers strong benefits," Holt said in an emailed statement.
DX Group and Menzies announced in March that they were in talks over a potential deal, a month after DX warned on profit, citing challenges in the courier market and margin pressure in its freight unit.
The proposal is for DX to buy Menzies' distribution arm through a reverse takeover that will give Menzies' shareholders a position in the enlarged company.
DX would pay about 60 million pounds cash and issue new shares to Menzies equalling 80 percent of DX's share capital, the companies said last month.
Gatemore said the current deal valued DX's shares at 14-16 pence and it wanted to see significantly improved terms or for the deal to be scrapped.
If DX were to split the 60 million pound cash payment between Menzies and DX shareholders, DX shareholders would get around 30 pence per share in total, Gatemore managing partner Liad Meidar told Reuters.
"That starts to be the beginning of a good deal," he said.
Any firm offer would require support from shareholders holding at least 75 percent of DX's issued share capital as per UK takeover rules.
Three of Menzies' top investors have called for the separation of its aviation and distribution units, following warnings over profit and revenue and executive departures.
A spokesman for Menzies was not available for immediate comment on Friday.