Grafton said yesterday that it valued Heiton at €325 million, or €6.35 per share, a 22% premium on the €5.20 level where Heiton shares traded yesterday.
Heiton directors later poured cold water on the approach in a statement to the stock exchange, saying the board "categorically rejected" the proposal and dismissing it as "a speculative attempt to take advantage of Heiton's future potential at the expense of its existing shareholders".
The Heiton board also questioned whether the approach was designed to hinder Heiton's ability to pursue an independent strategy of growing by acquisition.
Grafton recently increased its stake in Heiton to over 29%, which is just below the threshold at which Grafton would be required under stock exchange rules to make a formal bid for the company.
Grafton said it would review its options in light of the Heiton board's response. These included the possibility of making a formal offer for the company, which owns the Heiton Buckley chain of builders merchants, Atlantic Homecare, Sam Hire and Cork Builders Providers.
Heiton holds the number one slot in the Irish builders' providers market, with approximately 10% market share. Grafton holds approximately 9%. These positions are reversed in the DIY sector, where Grafton holds approximately 9% of the market and Heiton 7.5%. Industry observers consider both markets to be relatively fragmented when compared to other countries, leaving them open to consolidation driven by mergers among the biggest players.
Dolmen Securities head of research Stuart Draper said the next stage in the takeover battle was likely to involve Grafton deciding whether to make a fresh approach based on a higher price, or to make a formal, hostile bid at €6.35. Mr Draper said the takeover premium built into Grafton's proposal was "not huge" and that the price was "a little on the cheap side".
Heiton said it was willing to restart talks with Grafton to agree a proposal that reflected the full value of the company, but that Grafton had chosen not to pursue this option. The company said Grafton had made earlier proposals of €5.85 and €6.00 per share before tabling a price of €6.35.
Heiton also said yesterday it would bring forward the announcement of its annual results to next Monday.