July 11 (Reuters) - Hedge funds Nut Tree Capital

Management and Caspian Capital are making an offer for Martin

Midstream Partners ( MMLP ), a letter seen by Reuters showed,

aiming to scupper a bid from the fuels storage and transporter's

largest shareholder to buy it out.

The rival offer would give unitholders of Martin Midstream ( MMLP )

$4 per unit in cash, valuing the Kilgore, Texas-based company's

publicly-traded units at $156 million. The price is a 21%

premium to the unit's $3.30 closing price on Wednesday.

The bid tops the $3.05 per unit cash offer which Martin

Resource Management Corporation (MRMC) said on May 24 it had

made to acquire all common units it did not already own. MRMC is

headed by Ruben S. Martin III, whose father in 1951 set up the

business to which MRMC and Martin Midstream ( MMLP ) trace their roots.

In the letter to the board committee set up to evaluate

MRMC's offer, the hedge funds said their efforts to engage on

their bid had so far been rebuffed, despite it being more

financially attractive. It said that MRMC faced conflicts of

interest and was trying to acquire Martin Midstream ( MMLP ) at below

market value.

"We believe the committee's insistence on the general

partner's support to engage in discussions regarding a premium

acquisition offer is inappropriate and calls into question the

committee's own independence," the letter said.

Martin Midstream ( MMLP ) and MRMC did not immediately respond to

requests for comment.

Martin Midstream ( MMLP ) is structured as a tax-efficient master

limited partnership (MLP), meaning ownership is split into

publicly-traded common units, but also general partner (GP)

units which have outsized influence because the owner of these

controls the governance of the MLP.

The GP stake is controlled by MRMC, which also owns 15.7% of

the common units.

In a filing detailing its offer, MRMC said it only had

interest in buying out the company, and would not entertain

selling it to another party.

Martin Midstream ( MMLP ) offers storage and transportation services

for fuels and petrochemicals. It also manufactures fertilizers

and lubricants, with its operations concentrated along the U.S.

Gulf coast.

Both Nut Tree Capital and Caspian Capital are New York-based

funds which focus on distressed middle-market companies.