New Zealand retailer Briscoe has criticised Kathmandu's profit forecasts as unrealistic after the outdoor wear chain rejected its takeover offer.
Kathmandu's directors have unanimously recommended shareholders to reject Briscoe's cash-and-scrip offer of about $AUD318 million on the grounds it undervalues the company.
Independent advisers to Kathmandu have valued the retailer's shares between $NZ2.10 and $NZ2.41, significantly higher than the offer's implied value of $NZ1.80.
Kathmandu's rejection of Briscoe's advances on Thursday came as the retailer warned its unaudited net profit had more than halved to $20 million in 2014/15.
However it forecast a rise in underlying earnings and sales rise in the year ahead.
Briscoe managing director Rod Duke slammed the 2016 forecast, saying it contained "a lot of blue sky".
He declined to reveal, though, whether the NZ homewares and sport goods retailer will increase its offer.
"Why would the market believe Kathmandu's self-confessed internal and external challenges are over," Mr Duke said.
Kathmandu said Briscoe's June offer was timed to exploit its recent share price struggles.
"Briscoe can afford to offer a lot more for the Kathmandu shares and is not sharing enough of the benefits of the transaction with Kathmandu shareholders," Kathmandu directors said in a statement.
Chairman David Kirk said Kathmandu had higher growth and profit margin expectations than Briscoe, with strong potential to expand overseas.
"Briscoe on the other hand is a lower growth, lower margin, just New Zealand business," he told AAP.
"It doesn't own any brands, it retails other people's brands and that's the primary reason why Briscoe has never been able to expand outside of New Zealand.
"It doesn't make much sense to put these two companies together."
But the fundamental reason for rejecting Briscoe's offer was its value, he said.
Kathmandu shares climbed 13.5 cents, or 8.9 per cent, to close at $1.645 amid the war of words between the retailers.
Bell Direct equities analyst Julia Lee said Kathmandu investors were cautious about whether it could overcome declining sales and rebound from a run of poor profit results.
"It's a slight uplift (in the share price) but not the strong a reaction that you would expect from stocks if a bidding war were to break out," she said.
Kathmandu's unaudited accounts showed that its net profit dropped 53 per cent to $20 million.
Newly installed chief executive Xavier Simonet blamed increased costs and an aggressive clearance of excess stock in the first quarter for dragging earnings down.
But sales and profits had rebounded in the final quarter of the financial year, aided by sales of winter products.
The company, which is due to report its annual results on September 29, forecast an 11 per cent sales lift and 43 per cent rise in underlying earnings for 2015/16.
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