Edinburgh's Capricorn Energy is coming under increasing pressure after asset manager Legal & General said it will take the "unusual step" of voting to oust the senior management team and reject the Scottish-headquartered firm's proposed merger with Israel's NewMed Energy.

Legal & General Investment Management (LGIM) joins a substantial band of opponents to the NewMed deal led by Palliser Capital, a hedge fund that owns approximately 6.9 per cent of Capricorn's shares and is its third-largest investor. Palliser is pushing to replace seven of Capricorn's nine directors – including chief executive Simon Thomson – with its own nominees.

Confirmation of LGIM's opposition came as NewMed said that the terms of its merger offer are final, and as Capricorn issued a hefty 46-page update to investors extolling the virtues of the deal. The presentation reiterated Capricorn management's assertion that Palliser's plans are based on "incorrect facts and assumptions" and further warned of "substantial" risk to Capricorn's share price if the merger does not go ahead.

Both sides are preparing for a showdown on February 1 when shareholders will be asked to vote on both on the merger and on Palliser's proposal to remove most of the existing board of directors.

The vote on the merger will take place in the morning, followed in the afternoon by a vote on the Palliser proposition. Both will be decided by a simple majority of shares represented at the meetings.

READ MORE: Capricorn sets date for showdown with NewMed critics

The timing has drawn criticism from both Palliser and LGIM. The concern is that any resulting shake-up could leave the new board bound by the earlier vote on whether to proceed with the NewMed tie-up.

In yesterday's statement from LGIM, which owns just shy of 4% of Capricorn, the asset manager said its vote was an "usual step" based on grave concerns about governance, process, future strategy, executive compensation, environmental risks and valuation.

"The decision to hold the company’s meeting (on the merger) before the shareholder requisitioned meeting (on the board) appears to be a direct attempt to undermine due process," LGIM said.

"The process to date raises serious questions about the ongoing suitability and fitness of the entire board ... to serve as directors of a listed company."

For its part, Capricorn said it believed it to be in the interests of all shareholders to have an opportunity to vote on the NewMed deal. It added that delaying the vote on the merger "would also likely increase overall transaction risk in an evolving market environment".

READ MORE: Capricorn Energy bids to quell activist unrest over Israeli deal

"If Palliser reconstitutes a majority of the board before the merger vote, we believe there is a material risk that the combination would be terminated without our shareholders being able to vote on the combination," Capricorn said.

Most of the shareholders publicly opposed the deal with NewMed, which has a 45% stake in Israel's giant offshore Leviathan gas field, are hedge funds. Among others who have said they will vote against the merger are Madison Avenue, which owns an 8% stake, Kite Lake on 7.4%, and Newtyn with a 6% share of the business.

London-based hedge fund VR Capital, which owns about 2% of Capricorn, yesterday reiterated its intention to vote against the deal and in favour of Palliser's board changes.

"VRGP has found [Capricorn's] arguments in favour of the combination to be entirely unpersuasive and believes proceeding with the deal would be destructive to shareholder value," the group said.

"VRGP finds the current board's intransigence in the face of opposition of so many of its significant shareholders to be puzzling and concerning."

Under the agreement with NewMed, Capricorn shareholders will receive a $620 million (£561.8m) special dividend before the deal concludes. There will also be an exchange of shares giving Capricorn investors a 10.3% stake in the enlarged group.

READ MORE: Capricorn ditches Tullow merger for Israeli gas specialist NewMed

Based on NewMed's share price at the time the deal was announced in September, the transaction values Capricorn at 271p per share. Palliser believes the company is worth 315p per share, a 27% upside to the implied value of the NewMed deal.

Earlier this month Capricorn said the financial analysis from Palliser was based on "several outdated and incorrect facts and assumptions" that overstate the value of Capricorn on a stand-alone basis. Palliser has rejected this claim, saying the board appears intent on "talking down" Capricorn's prospects to justify the "flawed" NewMed deal.

“We have real concerns that shareholders who rely on the plan [from Pallister], without understanding the material risks and errors in its analysis, will likely be voting or value destruction,” Capricorn said.

Under the proposed NewMed deal, the combined group would be listed in London under the NewMed name, with Mr Thomson making way for NewMed chief executive Yossi Abu. It would have a portfolio of 11.8 trillion cubic feet of gas with production focused in Israel and Egypt, making it the largest gas-focused energy company listed in the UK at a time when Europe is looking alternatives to Russian gas supplies.

Previously known as Cairn Energy, the Scottish company changed its name to Capricorn in December 2021 after settling a long-running tax dispute with the Indian government. Shares in Cairn closed yesterday's trading down 0.8p at 242p, a decline of 0.3%.