Casket, the troubled bicycle manufacturer that supplies the Lotus Superbike to Olympic cyclist Chris Boardman, has announced that it is in talks with another listed company that could lead to a merger.
The company said that while the details of a deal had not yet been decided it was unlikely to exceed Casket's market value of pounds 9m.
Casket manufactures several well-known bicycle marques, including Claud Butler, British Eagle and Townsend, and is the country's second-largest bicycle maker after Raleigh.
But it has experienced a series of problems recently after a disastrous foray into Europe. In early July the company's shares were suspended after difficulties with its German subsidiary, Heidemann Fahrrad, which was later placed in receivership.
Last month the company announced losses of pounds 12.3m and the closure of its Leeds head office which will be relocated to Lancashire, one of the group's UK manufacturing sites. Its clothing subsidiary is also up for sale.
Casket is not the only bicycle company that has been struggling in a fiercely competitive market. Last week, Raleigh announced it was shedding 200 jobs at its Nottingham site, which employs about 1,000, and spending pounds 6m on restructuring its factory to enable it to compete more effectively against overseas competition. Of 11 million bicycles sold in the UK last year, eight million were made in the Far East.
Casket's problems have been largely overseas. It paid pounds 1.3m for the German business in 1993 but mis-read the recession, the German market and the company's internal problems.
The UK market has also turned down. In 1994, 1.9 million cycles were sold in Britain against 2.1 million the year before. The expansion of larger retailers such as the Halfords chain (owned by Boots) has also placed manufacturers' margins under pressure.
Casket made a pounds 3m loss in 1990, but gradually clawed its way back to profits. It built up its bicycle business by acquisition and did well in the mountain bike craze. But its expan- sion into Europe - seen as a way of decreasing its reliance on the UK market - has not worked. The company has issued a series of profits warnings and its shares were suspended in July pending a decision on its German business.
The company later admitted that buying Heidemann was a mistake and that the downturn in the German market had lasted longer than anticipated.
The acquisition of the bike importer Townsend has also proved problematic following the company's attempts to turn it into a manufacturer.
The shares, which were trading at 53p in May last year, rose 0.5p to 9.75.