AGRIBUSINESS Tandou says purchases of its shares by fund managers validate its decision to reject a takeover offer from the Guiness Peat investment group.

Tandou yesterday sent its shareholders a response to the offer, reiterating the board's view that the offer represents a significant discount to the underlying value of Tandou shares.

Last month GPG (No. 4) - a wholly owned subsidiary of Guiness Peat Group (Australia), ultimately owned by Guiness Peat - made a second offer for Tandou after a proportional offer expired. GPG said its new offer would be 33c cash per share for all fully paid ordinary shares in Tandou.

It said the new offer represented a 10 per cent premium to the price offered under GPG's proportional offer, made in September last year. Under the proportional offer, GPG had offered 30c per share for up to 50 per cent of each shareholder's shares in Tandou. GPG currently holds 20.67 per cent of Tandou shares.

Tandou chairman Dick Warburton said in a statement yesterday that the takeover offer was unattractive and should be rejected by Tandou shareholders.

"The recent purchase of 30.6 per cent of Tandou shares by funds managed by Ecofin and Water Asset Management, announced earlier, demonstrates that they perceive further value in Tandou shares and see potential in the company, and vindicates the board's recommendation that shareholders should reject GPG's offer," he said.

Tandou sees the underlying fundamental value of its shares at 62 to 66c. Tandou shares closed up 0.5 of a cent to 36c.