Model maker Hornby said a takeover bid by its largest shareholder "significantly undervalues" the company.

The Sandwich-based firm, which revealed widening annual losses on Wednesday, is facing a swoop by Phoenix Asset Management Partners, which values it at £27.4 million.

It comes after its former investor New Pistoia Income Limited sold its stake in the company to Phoenix.

New Pistoia bailed out after its failed attempt to remove Hornby's chairman Roger Canham last month.

Ironically, Mr Canham has now resigned because of a conflict of interest, as he is also a director at Phoenix.

Hornby revealed today it has replaced him with former non-executive director David Adams.

It urged its suitor to keep the company listed on AIM, the junior market of the London Stock Exchange, should the takeover be successful.

Phoenix has made an offer of just over 32p to all other shareholders in the toy-maker, which also owns Scalextric and Airfix.

It was forced to make the takeover bid by stock market rules, after its acquisition of New Pistoia shares took its stake in Hornby above 55%.

Companies must make a takeover bid if their shareholding rises to 30% or more.

Hornby's share price has fallen after a string of poor results in recent years.

It collapsed from 81p to 23p overnight in February 2016 after revealing it was at risk of breaking its lending agreement with its bank after saying it expects trading losses to reach up to £6 million following a poor start to the new year.

On Wednesday, it revealed underlying losses increased by 10% to £6.3 million in the year to the end of March.