(Recasts with Martin Midstream backing shareholder buyout)

By David French

NEW YORK, Oct 22 (Reuters) -

Martin Midstream Partners said on Tuesday it stood behind its planned takeover by its largest shareholder, after two hedge funds which made a competing bid said they planned to try and rally shareholders to vote against the deal.

Martin Midstream, which focuses on storing and transporting fuels, earlier in October agreed to a

$157 million deal

with Martin Resource Management Corp. Under the deal, MRMC will pay $4.02 per unit in cash for the common units it does not already own, after initially offering in May to acquire Martin Midstream for $3.05 per unit.

MRMC currently holds 15.7% of the common units of Martin Midstream.

Hedge funds Nut Tree Capital Management and Caspian Capital, which in July offered to buy Martin Midstream for $4.50 per unit, said on Tuesday they continued to oppose the takeover by MRMC. They argued that the MRMC offer undervalued Martin Midstream, and they also raised concerns about conflicts of interest in the process which saw the MRMC offer accepted.

In response, Martin Midstream said in a statement it reaffirmed its commitment to the MRMC deal, insisting it was approved after a nine-month evaluation process which included considering the hedge funds' buyout offer.

The two hedge funds hold exposure to Martin Midstream through cash-settled derivatives worth the equivalent of 13.2% of the common units, and will file regulatory paperwork allowing them to petition unitholders to reject the buyout, according to their statement.

The hedge funds face an uphill battle to block the MRMC deal because unitholders allied with MRMC representing 26% of the common units have committed to vote in favor. The transaction requires the approval of the holders of a majority of the outstanding common units of Martin Midstream.

Kilgore, Texas-based Martin Midstream also questioned the hedge funds' alignment with unitholders as their exposure to the company was currently described as through derivatives.

MRMC's winning bid represented a 34% premium to Martin Midstream's closing share price on May 23, the day before the bid was made public.

A date for the vote has not yet been disclosed.

MRMC is headed by Ruben S. Martin III, whose father in 1951 set up the business to which MRMC and Martin Midstream trace their roots.

Martin Midstream is structured as a tax-efficient master limited partnership. In an MLP, the ownership is split into publicly traded common units, and also general partner $(GP)$ units that have outsized influence because the owner of these units controls the governance of the partnership. MRMC controls the GP stake.

(Reporting by David French in New York; Editing by Muralikumar Anantharaman and Leslie Adler)

((davidj.french@thomsonreuters.com;))