In a letter, ValueAct said the theme Park group is investing too much capital in long term projects that won’t generate decent returns for years.
Merlin’s share price does not reflect the underlying value of the company and may not in the foreseeable future, added the activist investor.
“The company's share price is down 2.7% since the 2013 IPO despite a 35.5% increase in earnings per share. Simply put: Merlin has struggled as a public company."
The investor added it has made its comments privately to the company already but now had decided to make them generally known.
"We are writing this letter to reiterate our recommendation that Merlin should evaluate a public to private transaction."
Merlin bats away criticism
Merlin responded it believes its current strategy focused on strong brands and a global portfolio is the right one.
There has been strategic progress in the financial year, it added, with seven Midway attractions opened and 244 additional accommodation rooms.
“The board remains fully confident in the ongoing execution of Merlin's strategy and that its successful delivery will create significant value for shareholders.”
Shares in Merlin rose by 7% to 355.5p as investors speculated other shareholders might join ValuAct in calling for a change in strategy.
Brokers see attempt to flush out bidder
AJ Bell said: “ValueAct needs to woo some of the other large shareholders to get sufficient backing to encourage the board to put the business up for sale as its current stake may not have enough weight.”
“However, it does seem feasible that the public shaming by ValueAct could push Merlin to make changes to the structure of its business to prove that it can generate value for shareholders.”
Peel Hunt added that the 450p price per share suggested by ValueAct was reasonable but it doubted the Merlin board would agree to the level of debt that would be needed to facilitate a buy-out.
“However, it is It may achieve the purpose of catalysing a takeover offer which, we believe, has become increasingly likely as the share price has fallen and as sterling has weakened. “
At 335p, the group, which also owns Thorpe Park, Alton Towers, London Eye and Madam Tussauds, is worth £3.4bn.
--adds broker comment, share price --