British challenger bank Shawbrook Group has rejected a £825m buyout proposal by two private equity firms after consulting key institutional shareholders.
It also disclosed that the joint offer from Pollen Street Capital, its largest shareholder, and BC Partners, announced on Friday, had been an improved offer from an earlier bid that had not been made public.
Analysts at Liberum said they expected the bidders could yet come back with another improved offer.
Shawbrook, founded in 2011 and listed in 2015, specialises in lending mostly to UK small and medium-sized companies but has been hit as the sector faced declining margins.
Its shares have been trading below their IPO price in recent months.
Pollen Street and BC Partners offered to buy the bank for 330 pence per ordinary share in cash and allow shareholders to keep a final dividend of not more than 3 pence per share, Shawbrook said last week.
The proposal was 22% above Shawbrook's closing share price on Thursday.
"Taking into account the terms of the revised proposal, the confidence the board has in Shawbrook's strategy and plan and the feedback from Shawbrook's major institutional shareholders, the Board has concluded that it is not willing to recommend the consortium's revised proposal," the lender said in a statement.
Pollen Street and BC Partners said they were surprised by Shawbrook's rejection, adding that the lender had conveyed it was "comfortable" with the improved offer.
The firms also said that after making the offer they had met with Shawbrook's shareholders to discuss it.
Analysts said the offer undervalued Shawbrook.
Liberum said the starting level for a successful bid should be at least 350 pence per share.
The UK's challenger banks have been increasingly seen as ripe for takeovers in recent months, bankers advising on M&A activity have said.
A prolonged period of low interest rates has squeezed earnings and the pound's fall has made them cheaper for foreign buyers.
Shawbrook also today reported a 14.1% rise in full-year underlying pretax profit to £91.4m, which analysts said was in line with expectations.
Loans and advances to customers rose 22% last year to £4.05 billion, Shawbrook said.
