Asset management company Baillie Gifford, oil producer Dragon Oil's largest independent investor, said an increased takeover offer from majority owner Emirates National Oil Co (Enoc) ‘materially undervalued’ the company.

Enoc, which owns 54 per cent of Dragon Oil, increased its bid to buy out minority shareholders to 750 pence per share on Tuesday, valuing the stock it does not already own at about 1.7 billion pounds ($2.7 billion).

Baillie Gifford, Dragon Oil's second-biggest investor after Enoc with a 7.2 per cent stake, said the improved offer does not fully value the firm's growth potential.

The move sets the stage for other significant minorities to hold out for an improved bid, said Alex Olvera, event driven analyst at Makor Securities.

Baillie Gifford said on Thursday that it had offered to discuss the possibility of ENOC including a contingent payment note to shareholders as part of the deal.

The note would pay out if production from Turkmenistan's Cheleken contract area, Dragon Oil's only producing field, hits certain milestones, Baillie Gifford said.

Dragon Oil said it expects production at Cheleken to plateau at 100,000 barrels of oil per day for the next five years.

A spokesman for Enoc maintained that the offer was a fair one.

"The offer price was derived based on extensive feedback from numerous shareholders, and the independent committee of Dragon Oil," the spokesman said.

The current round of bidding is Enoc's second attempt to buy Dragon Oil after failing to acquire the company in 2009.

Templeton Asset Management, which holds a four per cent stake in Dragon Oil, declined to comment on the matter, while Setanta Asset Management, which owns three per cent, was not immediately available for comment.

Dragon Oil's shares were down 0.6 per cent at 723.5 pence on the London Stock Exchange at 1440 GMT.  - Reuters