General Electric, one of the world's biggest conglomerates, is poised to bid about £5.8bn for Amersham, the medical technology company that was Margaret Thatcher's first privatisation.
Bankers for both sides were locked in negotiations last night with the aim of agreeing a cash offer to be announced with GE's third quarter results today.
Amersham shares were up a further 19p to 660p yesterday, while the bid is expected to be pitched at more than 800p a share. The Buckinghamshire-based company admitted on Wednesday that it had received a preliminary bid approach.
Although the deal could yet fall through, analysts said Amersham's main diagnostics business would make a good fit for GE's Medical Systems division, which has $10bn in annual sales. GE makes MRI scanners and other diagnostics machines, which use Amersham chemicals to enhance their images. The pair have collaborated since 2001, and are trying to develop new contrast chemicals used in positron emission tomography, or PET, scans to detect diseases at an early stage.
It is believed the US giant has already made plans to sell on at least one of Amersham's other two divisions, probably Protein Separations, which helps purify biotech drugs and which is valued by analysts at about £1bn. European groups including DSM and Sulzer were said to be interested in the division.
It was unclear last night whether it would also want to keep the troubled Drug Discovery business, which has had to shed jobs as a result of a downturn in pharmaceutical and academic research spending.
Amersham was again among the most heavily traded shares yesterday as speculation over a deal continued to swirl. Some analysts argued that the prospects of an agreement were still less than 50-50 and several recommended selling Amersham shares.
Kerry Heath of Lehman Brothers said there was a risk that, if talks failed, Amersham shares could fall sharply. "While we appreciate the bidder could be a giant such as General Electric, who could theoretically afford to pay over 22 times next year's earnings, one must question why this would be necessary given the lack of any obvious third party who would wish to counterbid higher."
GE was seen yesterday as the potential acquirer with most scope to cut costs in a merged business. It has been aggressively expanding its medical divisions in recent months, and only yesterday completed the £1.5bn acquisition of Finland's Instrumentarium, which makes anaesthesia equipment.
More generally, the conglomerate - capitalised at $304bn (£183bn) on the New York Stock Exchange - has been chasing acquisitions in perceived high growth areas, including media. Its media subsidiary, NBC, agreed on Wednesday to buy the film and television interests of Vivendi of France for $3.8bn (£2.3bn).
Rob Friedman, analyst at Standard & Poor's, said the company's size meant that growing sales and earnings by a meaningful percentage was now very difficult.
"GE has a steep hill to climb trying to generate double digit earnings growth. They need to make these sorts of acquisitions just to keep growth in the high single digits. It can get outsized growth from the diagnostics sector and healthcare industry generally. These are growing at above average rates."
Sir William Castell, Amersham's chief executive, created the FTSE 100 stalwart through a string of mergers. It has become the market leader in diagnostic imaging, making chemicals to enhance the images from X-rays and other body scans. This historic business grew out of a wartime research centre examining uses for radium ore, then used to produce luminous paint for ships and airplanes, and in 1982 the company became the first to be privatised by Margaret Thatcher's government.
Sir William's friends say he would like to bow out on a deal after 13 years at the helm. He stands to net more than £2m personally from his shares in the company.