A London-based hedge fund has filed a legal injunction attempting to halt French oil explorer Etablissements Maurel & Prom SA's proposed $700 million takeover of MPI, a holding company to which it has close links.

Ledbury Capital Partners LLP, which owns around 3.2% of MPI, says the deal undervalues the target company, according to the fund's lawyer.

The hedge fund filed the injunction with the Paris Court of Appeal last Friday against a decision by the French financial regulator earlier this month allowing the deal to proceed without the need for a tender offer.

The deal, which was proposed in August and which has been approved by both firms' boards but not yet by shareholders, would see Paris-listed Maurel & Prom buy back a firm that it set up in 2009 but span off two years later.

Under the terms of the deal, Maurel & Prom has offered 1 share per 1.75 MPI shares, on top of a special dividend of €0.45 ($0.48). Ledbury argues that this ratio should be one for one, without payment of the dividend, said Didier Fornoni, a lawyer at Dentons representing Ledbury.

"The price greatly undervalues MPI," said Mr. Fornoni. "It values it as less than the cash, which is unbelievable." Ledbury also disputes the valuation methodology used by an independent expert appointed by MPI to scrutinize the deal, Mr. Fornoni said.

The move comes as part of a generally rising tide of activism in continental Europe. So far this year 24 companies have been publicly subjected to at least one activist demand, according to financial data provider Activist Insight, up from nine for the whole of 2010. In France, a country where activists have traditionally met with limited success, six companies have been targeted by activists so far this year, the second highest count since 2010.

MPI's main assets are €222 million in net cash, a 21.8% stake in London-listed Nigerian oil explorer Seplat Petroleum Development Company, and a joint venture with Maurel & Prom operating in Myanmar and Canada.

Ledbury's court injunction is designed to slow the merger process by contesting French regulator the Autorite des Marches Financiers' decision, although shareholder meetings scheduled for next month could still go ahead before the Paris Appeal Court rules.

The AMF declined to comment. Maurel & Prom declined to comment on the takeover.

A spokesman for MPI said that "Maurel & Prom can offer a future to MPI." He added that the deal was "a first step in a bigger consolidation strategy."

In August the two firms said a deal would provide better access to financial markets, "substantial" cost savings and significant cash flows in the face of "a difficult macroeconomic environment following the sudden drop in the price of oil".

Earlier this month Maurel & Prom, set up 200 years ago, reported that sales in the first nine months of the year more than halved to €204.8 million. It also said it had renegotiated its banking covenants due to factors including the drop in the oil price and a production outage in Gabon after a pipeline breakage.

Mr. Fornoni, lawyer for Ledbury, said that Maurel & Prom wanted to "use the cash in MPI to pay its debt."

As well as their shared history and a joint venture, the two firms have some shareholders in common. Pacifico and Mutuelle Assurance Commercants et Industriels France SA each own stakes in both firms, amounting to approximately 30% in each, according to data from FactSet, and both support the merger, Maurel & Prom has said.

Meanwhile, Jean-Franç ois Henin, a businessman with a controversial history, is chairman of both companies. In 2003 the Federal Bureau of Investigation said a range of charges had been brought against him, including mail fraud, wire fraud and conspiracy to defraud the U.S.

He later entered into a settlement with the Federal Prosecutor of Los Angeles to pay a $1 million fine and was banned from traveling to the U.S. for five years, although he said at the time that it wasn't connected to Maurel & Prom.

The spokesman for MPI said that there was "absolutely no link with M&P/MPI." Maurel & Prom said: "There is no link with Maurel & Prom, MPI or the merger project, and this is over as it ended in 2011."

Write to Laurence Fletcher at laurence.fletcher@wsj.com

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(END) Dow Jones Newswires

November 26, 2015 19:45 ET (00:45 GMT)