Telecom equipment maker Marconi refused to confirm yesterday whether it was in talks to be acquired by Ericsson as bid speculation naming the larger Swedish rival sent the firm's shares to a five-month high.
"We do not comment on rumours and this is just another rumour," spokesman David Beck said, adding that Marconi had until yesterday no plans to issue a statement.
People familiar with the negotiations told Reuters on Sunday that Ericsson was in talks to buy the UK firm and a deal could be announced within weeks.
The Financial Mail said in an unsourced report the same day that Ericsson saw a total valuation of up to £1.3 billion for Marconi.
Hopes of a bid have helped Marconi's shares recover from a steep fall in April when it lost a much-expected network upgrade contract from its largest customer, BT Group. Marconi has said it is considering all strategic options and has confirmed it is in talks with potential suitors.
Chinese telecoms equipment vendor Huawei Technologies, with which Marconi already has an agreement to sell the other's products, was long considered the frontrunner, but in recent weeks has been upstaged by Ericsson.
Other bidders mentioned in the past include France's Alcatel, Germany's Siemens and China's ZTE.
Shares in Marconi rose as much as 11 per cent yesterday to a level last seen in April. By 1115 GMT (12:15 p.m. British time), they were 9.3 per cent higher at 337p.
Analysts said a takeover of the company would help wireless giant Ericsson boost its fixed-line business and give it access to BT and other fixed-line operators planning massive upgrades to networks.
But opinion was mixed on how much any acquirer would be prepared to pay given that Marconi's revenue from BT is set to decline over the next few years.
"I think the probability is quite high. They (Ericsson) have at least valued the case," said Helena Nordman-Knutson, an analyst at Ohman Securities in Stockholm.
Enskilda analyst Mats Nystrom said: "If the price is £1.3 billion... this is a valuation of 0.8 times sales, which seems all right."
He said Ericsson, whose shares rose as much as 1.4 per cent yesterday on the bid speculation, had a strong cash position and good cash flow to fund a deal. Ericsson has said its acquisition strategy would involve buying small and medium-sized companies worth up to £398.7 million.
An analyst in London, who asked not to be named, said Ericsson had looked at buying Marconi initially and decided against it.
"So if the story is real then they have clearly changed their minds and it will be interesting to know why," the analyst said, noting however that the valuations mentioned in recent press reports seemed "extraordinary".
"I can't see why anyone in this situation would pay a big premium," the analyst said, adding that the £1.3 billion figure probably included some £659 million worth of unrecognised deferred tax assets held by Marconi.
Marconi's market value is around £710 million.
The company was on a slow road to recovery after nearly collapsing in the 2001 telecoms meltdown and posted its first underlying operating profit since 2000 for the year to March 31. But BT's decision to cut it out of a £10 billion network upgrade slashed Marconi's market value by half in April.
The successor to the once mighty GEC industrial empire has announced 800 job losses in the wake of the BT contract loss. It previously cut thousands of jobs as part of its recovery from the telecoms downturn.