The deal would create the world's biggest supplier of chemicals and instruments in the biotechnology industry, with a market valuation of around $1.94bn (pounds 1.2bn).
Amersham's shares soared 11 per cent to an all-time high of pounds 14.47 yesterday before closing at pounds 13.92, up 92p, after the company issued a statement confirming Swedish press reports that the UK company was conducting due diligence on Pharmacia's life sciences division, Pharmacia Biotech.
Analysts said Amersham, which specialises in reagents, substances used to produce chemical reactions, and instrumentation for the biotechnology industry, had obvious synergies with Pharmacia Biotech, which has expertise in chromatography.
One analyst said there were obvious opportunities for cost savings in administration and marketing. Pharmacia Biotech employs around 2,500 people, more than twice as many as Amersham's life sciences operation.
The analyst added that the two companies would boost and complement each other's product range. In addition, there are geographical synergies, as Pharmacia is strong in Northern Europe and Sweden, while Amersham has made inroads into the US and central Europe, and has built up a global distribution network.
It is thought that, in the event of a merger, the two parent companies would spin off the life sciences businesses into a new unit, in which Amersham would have a controlling interest. It is thought unlikely the merged group would be floated.
Rumours of a possible merger have been circulating for some time and it was an open secret that Amersham had been looking to expand its life sciences operation. Pharmacia appointed a new president and chief executive, Fred Hassan, earlier this month, but Bill Castell, Amersham's chief executive, would have kicked off discussions long before Mr Hassan's arrival.
Mr Castell was unavailable for comment yesterday and a company spokesman would not elaborate on the official bland statement.
Amersham is due to report its full-year results on 10 June, and it is thought a formal announcement giving details of the agreement will be made then. The company, which is known to many as the first government business to be privatised under Margaret Thatcher, has experienced pressure on its life sciences business due to consolidation in the pharmaceuticals industry. Pharmacia, meanwhile, has warned three times in the past 12 months of earnings below expectations.
Turnover for Amersham's life sciences division was pounds 152.6m for the 12 months to September last year, while Pharmacia Biotech had total sales of $439m last year, although this year's figure will be lower as the medical instruments group Biacore has since been spun off.Reuse content