T&N shares rose 20 per cent at one point to 166p before slipping back to 159p. "Even at this price, after the rise in the share price, T&N looks like a sitting duck," says Robert Speed, engineering analyst with Henderson Crosthwaite.
It is thought that US motor parts groups Dana Corporation and Federal Mogul are considering tabling a joint pounds 1bn bid. T&N is currently valued at pounds 883m. But any bidder may be forced to go higher. "The shares are worth upwards of 200p before adding in any bid premium," says Mr Speed.
Analysts said T&N' s UK rivals GKN, BBA and another US motor group Allied- Signal, may also join the bidding race, forcing the asking price higher. One industry source suggested that T&N had held informal talks with several suitors. But T&N refused comment.
Chairman Sir Colin Hope has turned T&N into one of the world's leading car components groups over the last few years. GKN has already shown its interest in parts of T&N, tabling a pounds 220m bid for its metallurgy business. Similarly BBA and Allied were believed to have joined forces to mount a pounds 400m plus bid for Ferodo, T&N's friction business.
The car parts industry looks ripe for consolidation. It is suffering from over capacity and some of the smaller players have been squeezed by the car manufacturers. T&N announced in March that it would have to make 1,400 job cuts at a cost of pounds 25m due to weak European car industries.
The first signs of consolidation came last year when Lucas teamed up with American rival Varity last year. BBA tried to block the bid and is thought to be keen to bag another acquisition as soon as possible.
T&N itself is trying to expand internationally. It is persevering in its long-running attempt to buy German piston manufacturer Kolbenschmidt, although its attempts have been held up by the local competition authorities.
T&N has only recently become the subject of bid speculation after coming up with an innovative solution to cap outstanding liabilities arising from when, as Turner & Newall, it was one of the largest asbestos producers in the world. It still has to pay up to pounds 323m to cover any future legal claims, but any further payments will be covered by an insurance policy.
An US court is still considering a T&N appeal to uphold a class action against it called the Georgine settlement.
If the class action is permitted it will in effect help to cap T&N's US liabilities. Analysts estimate it would wipe up to pounds 120m off any future claims. A ruling is expected as early as this week.
T&N's share price climbed sharply after it secured the insurance deal which capped its asbestos liabilities. But since then its value has slumped alarmingly, and it has severely underperformed the stock market.