Lucas refused to comment on suggestions that its shareholders might be offered 60 per cent of the shares in the new enlarged group but analysts said that was roughly how the equity would be divided up on the basis of the two companies' respective market capitalisations.
Lucas is valued at just under pounds 1.9bn while Varity, former owner of the tractor-maker Massey Ferguson, is valued at about pounds 1.2bn. After rising yesterday by 12 per cent to a high for the year of 233.5p, Lucas shares fell back to close 6.5p lower at 227p as the prospect of a cash bid disappeared.
However, analysts still believe Lucas is vulnerable to a bid if the talks with Varity, which are stilll at an early stage, fail to lead to a deal. Other suitors mentioned include the rival UK car components group, T&N.
A merger between Lucas and Varity could be a good strategic fit. Geroge Simpson, the outgoing chief executive of Lucas, has been saying for some time that the automotive component industry will be dominated by fewer, larger players in the future and has publicly talked about Lucas doubling its automotive sales to pounds 5bn.
Varity is strong in the North American market - an area where Lucas has traditionally been weak.
Its Kelsey-Hayes division is the biggest manufacturer of brake systems in the US and leads the world in anti-lock or ABS braking systems for rear-wheel and four-wheel-drive vehicles.Reuse content