The US-based holding company, which has a 32.4% stake, indicated several months ago that it was considering a possible offer for the company, but Steel has now confirmed in a letter to API Group chief executive Andrew Turner that it does not want to continue the discussions.

The letter from Steel Holdings chairman, chief executive and president Warren Lichtenstein said: "As you know we had some very preliminary discussions about the company and Steel Partner Holdings and I wanted to state clearly that it is not our current intention to continue those discussions.

"We continue to believe that the market price of API does not reflect its intrinsic value and this value will only be realised through a sale of the company. We feel there is no time like the present to commence an auction that will lead to a sale of the company to the highest bidder."

The letter, which was released publicly, boosted API Group’s share price by 4p to 41.5p. 

API Group, which has a stock market valuation of £32m, said in response to the letter said that the company had received no other approaches or indicative offers for the company and that the board is not currently engaged in any sale process.

It added: "The board takes the views of all its shareholders extremely seriously and will give due consideration to the proposal from Steel and keep shareholders informed of any significant developments."

Print and packaging M&A expert Nicholas Mockett, of Moorgate Capital, said: "I think we can surmise that Steel belives API Group to be worth more than its current valuation and is pushing for the business to be broken up or sold off.

"There are good fundamentals for selling the business for a number of reasons: API Group is selling high-end, differentiated packaging and we saw in the last recession that the luxury market is very resilient.

"It can also offer brand protection – through its Holographic products - which I believe will become an increasingly important market. Holographics can be used to verify that a product is genuine, which is particularly important in the pharmaceutical market. As living standards improve in the developing world so will the demand for verified pharmaceutical products.