The company said the attempt by Sunley Family Limited to change the management was a "loser". Norman Stubbs, the chairman, said Sunley, a privately-owned housebuilder, was wasting its time as the board had enough institutional support to defeat a shareholders' revolt.
The rebel investor, which owns 10 per cent of Tay, wants to Mr Stubbs and chief executive John Swanson replaced by Peter Hedges, a former deputy chairman at construction group Taylow Woodrow, and Sunley head Richard Tice.
The little-known company is seeking to capitalise on some institutions' anger at Tay Homes' performance. The shares have been hit hard by the slowdown in the North of England, collapsing from 142.5p in March to 111.5p yesterday.
Sunley is understood to have the backing of Phillips & Drew, which owns 17 per cent of Tay. However, Mr Stubbs said the current board owned 23 per cent and was supported by most shareholders. Fidelity, with 10 per cent, and Foreign & Colonial with 7 per cent, are thought to support the board.
"This is just an attempt by a pounds 20m-a-year company to win control of a pounds 150m-a-year rival without paying a premium," said Mr Stubbs. Tay, which has a market value of around pounds 30m, would seek to improve performance and grow through mergers with rivals of similar size, he said. "We would like a market capitalisation of around pounds 150m through tie-ups with other small housebuilders."
Tay announced that it would scale down its operations in the North-west due to poor market conditions. The company said it would stop buying land in the area, which accounts for around a third of its 1,500 annual completions. The change would save pounds 20m at year-end, including 13 layoffs. The money will be spent to increase volume in Tay's other regions, Scotland, Yorkshire and Oxfordshire.