DX Group shareholders controlling almost a fifth of the company have signed a letter demanding the board terminates discussions with John Menzies about a proposed takeover, unless the deal is improved significantly.

The letter, written by DX Group’s largest shareholder Gatemore Capital Management, clarifies its objection to the transaction with John Menzies and states that it will block the deal unless it was improved.

It said the proposed reverse merger “grossly undervalues DX and its potential to recover from the current nadir in profits”.

The letter, seen by MT, repeats the claim that DX investors have seen the share price of the operator drop 90%, and the loss of £200m of value, under the current executive team.

In it, Gatemore said that rather than completing the Menzies acquisition, which would value DX shares at 14p to 16p each, a turnaround plan could improve the company's operating margins to yield a share price of "anywhere from 35p to 70p".

The calculation is based on DX competitor Tuffnells recent performance, which saw it report an 8% operating margin for the 12 months to February 2017.

"By bringing DX to even half of this operating margin, we estimate DX can achieve annual EBITDA of £20m to £30m within two to three years [resulting in the improved share price].

As well as Gatemore, the letter is co-signed by shareholders Hargreave Hale, Downing LLP and Lloyd Dunn representing almost 18% of DX Group’s shares collectively.

Liad Meidar, managing partner at Gatemore Capital Management said: “In a shareholder vote, our analysis suggests that only 60% of [total] shares will be voted.

“Having spoken to nearly all of DX Group’s large shareholders, we firmly believe that more than 30% [so half] of the shares will vote against the proposed reverse takeover with John Menzies’ distribution business.

“We believe that DX has significant value to it, but that it must either be unlocked before a deal is consummated or the terms of any deal must reflect the future value of DX.”