Alta Fox asked EG7's board to "expeditiously" address the company's trading discount and forecast that a sales process plus other changes "could unlock more than 100% in near-term upside for EG7 shareholders," according to a letter made public on Monday.

Alta Fox, which owns 6% of EG7 and made headlines last year by running a board room challenge at toymaker Hasbro, is worried the market is not valuing the company properly despite positive steps taken by management.

"EG7 is a high-quality business that remains dramatically undervalued due to no fault of current leadership," Alta Fox's managing partner Connor Haley wrote.

On Tuesday, EG7, which has game development divisions Daybreak Games and Big Blue Bubble, said it proposed to refresh its board as part of its commitment to help improve the share price. It did not give details.

The company said it expects to see strong revenue growth over the coming five years in part because of tactical decisions made by management last year.

"We agree with your sentiment and concur with many of your suggestions and have considered and will continue to consider numerous approaches to further unlock shareholder value," the company said in a public response to Alta Fox's letter.

Previous management's missteps and the fact it is not well known outside Sweden are hurting the company, the letter said. Alta Fox expressed confidence in EG7's current management team.

The hedge fund suggested the company, whose stock is listed on the Stockholm Stock Exchange, should relist in the United States to buy back shares. It also suggested management should promise to pay a recurring dividend, saying the company could pay "a 10%+ dividend on the current share price while still properly reinvesting and maintaining a net cash balance sheet."

Most urgently, Alta Fox wants to see a formal review process, including a possible sale of the entire company, which it expects could attract several potential acquirers willing to pay a considerable premium.

($1 = 10.56 Swedish crowns)

(Reporting by Svea Herbst-Bayliss; Editing by Conor Humphries and Chizu Nomiyama)

By Svea Herbst-Bayliss