HIT Entertainment, the company behind Bob the Builder, yesterday tried to fix a new deal to buy its rival Gullane, but only after it had reduced the price it was offering.
HIT, which offered 500p a share for Gullane last month, has came back in recent days with a reduced bid of 430p, valuing the business at £135m.
The group cut its offer price by 14 per cent after Gullane warned that problems with its Guinness Book of Records business in the US and delayed TV deals would mean flat profits this year. But Gullane yesterday rejected the new offer for its stable of children's favourites, which include Thomas the Tank Engine and Sooty, saying it was too low.
Despite the problems, Gullane believes it can drive a hard bargain as a number of players in the world of children's entertainment are keen to snap up Thomas the Tank engine, which generates substantial profits and is popular in other countries including America and Japan.
As well as HIT, Disney and Carlton are also circling Gullane, but neither has made an offer.
Gullane confirmed the renewed offer from HIT, saying: "We have received an approach, which significantly reduces the proposed price. The board believes this approach materially undervalues Gullane."
The company added that the problems which emerged in its profits warning did not affect the underlying strength of the business and said it was "actively exploring all options". Its shares jumped 2 per cent to 412.5p.
HIT, headed by Rob Lawes, would not comment on whether it will raise its offer again, but it is keen to reach agreement with Gullane's management before making a formal offer. Gullane now expects pre-tax profits for the year to June to be broadly in line with last year's £9.2m compared with analysts' expectations of £11.5m.
This is not the first time that HIT has made overtures to its rival. Two years ago the companies were in talks which would have valued Gullane at 750p a share, but the negotiations foundered.
Gullane, which was then known as the Britt Allcroft Company, is thought to have wanted more of a cash element to the offer.