ADP in takeover talks

ADP, the acquisitive US computer group, is believed to be in early takeover discussions with Kalamazoo, the struggling computer services company, which yesterday admitted that rival Lynx had walked away from merger talks.

Ian Davidson, Kalamazoo's finance director, said yesterday that the group had received "a number of additional approaches which may or may not lead to an offer". Shares in Kalamazoo, which tumbled earlier this year after a profits warning and revelations of accounting problems, have been rising since April on bid rumours. A source close to the company said: "I would be surprised if ADP was not the first one in there. Like Kalamazoo it is strong in car dealer software in Europe."

However, others are sceptical that Kalamazoo is committed to a merger. Richard Last, chief executive of Lynx, which in early June confirmed leaks that it was eyeing up Kalamazoo, said the discussion had broken down because he had "not seen sufficient progress". Mr Davidson says the sticking point is the Kalamazoo Trust, which represents 40 per cent of the shares. "We are still investigating whether the trust is legally allowed to sell shares. There is no guidance in the trusts deeds."

However, analysts believe it should not be an obstacle: "There are only four trustees and one of them is Kalamazoo's company secretary and another is an employee. If they wanted to recommend an offer they could do it," said one. Analysts believe Lynx did not want to be drawn into a formal bid, but would wait to see the outcome of the current talks. "They may come back." Mr Davidson denied the company was stalling on talks: "It's not a question of being reluctant. We are obliged to consider all offers." Shares in Kalamazoo fell 3.5p to 84p.