One of the largest shareholders in Capricorn Energy wants the oil and gas producer to call off its proposed merger with Tullow Oil and instead conduct a more thorough strategic review to create better value for investors.

In a letter to the company's board Tuesday, the company's largest shareholder argued that the terms of the deal ascribe no value to the company's non-cash assets and amount to a "nil-premium" takeover.

James Smith, the Chief Investment Officer of Palliser, believes that Capricorn is worth at least 330 pence per share, or roughly 50% higher than where it is currently trading. The proposed merger would give away more than half a billion dollars in value, or two-thirds of the market value, according to him.

Smith said in the letter that every day that the board fails to take action is worse for the shareholders. A former executive at an activist investor founded a London-based company last year.

Representatives for the two companies didn't respond to requests for comment.

The combined company will have a value of roughly 1.5 billion pounds, according to data compiled by the news agency. At the time, the companies said the transaction would allow them to expand across Africa.

Cash and receivables make up two-thirds of the net asset value. The Western Desert assets were purchased less than a year ago for $323 million.

A lifeline

He argued that the merger would benefit the company and its debts by giving it access to Capricorn's cash at a deep discount. A fire sale of assets to avoid insolvency was one of the things that Tullow warned investors about last year.

The companies said they would achieve $50 million in synergies.

Smith doesn't think the current terms will be approved by the shareholders and that the purchase price won't be increased.

Smith said that the best way to proceed was for the members of the board to withdraw their recommendation for the merger. The value that could be created in the near-term by selling its Egyptian assets should be benchmarked against the value that could be created in the future.