Technicolor, which is trying to pay down debt and enact a turnaround plan, said it would now try to get shareholder approval for the earlier offer of 169m euros from JPMorgan's Jesper Cooperatief fund.
Technicolor said in a statement the new offer lacked a sufficient legal framework and imposed higher break-up fees. "The uncertainty created by the new condition outweighed the benefits of the Amended proposal," it said.
"JP Morgan raised its offer, but it was accompanied by unacceptable conditions. Investors now expect a new proposal," said one analyst.
Technicolor has struggled for years to enact a turnaround plan that would reduce its fixed costs and allow it to compete against lower-cost set-top boxes produced in China and Tunisia.
After cutting 6,000 jobs last year, Technicolor said it aimed to reduce debt by between 200 million euros and 300m and generate 400m in free cashflow in 2012 through 2015.
It has been seeking a partner for its loss-making set-top box business and a buyer for its last remaining factory making the devices in France, which filed for insolvency earlier this month.
JPMorgan and Technicolor appeared ready to seal their deal when San Francisco-based private equity investor Vector Capital made a higher offer than JPMorgan in late May.
Vector offered 1.90 euros per share for a 17.5 per cent stake, then subscribe to a second issue to existing shareholders at 1.56 euros per share, Technicolor said.
JPMorgan originally offered 1.60 euros a share for the entire 30 per cent stake.
Analysts were sceptical, however, that Technicolor management would work with the newcomer or seek shareholder approval for the higher offer, since it had already agreed to work with JPMorgan.
According to media reports, Technicolor has also been fending off a demand by activist investor Daniel Loeb, owner of Third Point, to sell its licensing business. Third Point has reduced its stake in Technicolor in recent weeks to below the five per cent disclosure threshold