Manders immediately dismissed the offer as failing to recognise its value and its future prospects.
The improved offer consists of 17 new Kalon shares, or 300p in cash plus 14 new Kalon shares, for every six Manders ordinary shares.
Using Thursday's closing Kalon price of 91.5p, the all-share offer valued each Manders share at about 259p and the part-cash offer at 263.5p. That valued the company at pounds 97.2m.
But Kalon's price fell 2p to 89.5p yesterday, reducing the new offers to 253.5p and 259p respectively and the value to pounds 95.0m.
The offer for Manders' preference shares remains unchanged at 78p in cash.
Manders believes a merger would add pounds 5m to the sum of the two companies' profits after a rationalisation programme. It expects an increase in market share in both retail and trade paints.
Roy Amos, Manders' chairman, said: 'The slide in Kalon's share price since the original offer was announced means the final all- share offer is worth even less than its first effort, dropping from 295p to 254p, a reduction of 41p a share.'
Mike Hennessy, Kalon group managing director, said: 'We think this reflects fair value. The only thing we can't control is the market.'
Kalon also forecast that Manders' ordinary shareholders would see their dividend income increase by 8 per cent if they accepted the all-share offer and by 32 per cent if they took the part- cash alternative.
So far Kalon has received acceptances from 6.5 per cent of Manders' ordinary shareholders and 9.9 per cent of preference shareholders. The bid closes on Friday 21 August.
Kalon has already received approaches from potential buyers for the Mander Centre, a Wolverhampton shopping centre. It plans to sell the property, valued at pounds 57m last December, should it win the bid.
Kalon is pinning the battle on the record of Manders' management. It has achieved compound earnings growth of 0.5 per cent since 1988, Kalon has claimed. Kalon itself has had compound earnings growth of 36 per cent since 1988, when the present management team took over.
But the 1988 start date flatters Kalon's record because its profits dipped that year.
Manders claims that Kalon's recent record has been flattered by exceptional conditions in the own- brand paint market. But the good times are over, it says, because Texas Homecare and B&Q, Kalon's two biggest customers, are fighting a discount price war.Reuse content