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Medical giant Amersham surges after £5bn takeover approach

Amersham, the medical technology company which grew out of the Government's atomic energy programme, has attracted a £5bn takeover approach.

The company was forced to admit yesterday that it is in early talks with a mystery bidder, sparking a day of intense speculation over the identity of the predator and sending Amersham shares up 16 per cent.

Analysts said a US firm was the most likely bidder, although Roche, the Swiss pharmaceuticals group, was also in the frame. The diverse nature of the Amersham business meant there was little agreement, even on which industry the approach may come from.

Amersham, led by Sir William Castell, the chief executive, confirmed the approach after takeover speculation pushed its shares up in early trading. The stock had been briefly suspended on the Oslo bourse, which said it was investigating insider trading.

The company said: "Amersham announces that it has received an approach which may or may not lead to an offer for the company as a whole. No agreement has been reached and a further announcement will be made as appropriate."

Amersham shares initially leapt by a quarter as hedge funds scrambled to close short positions, and the stock settled up 89.5p at 641p, valuing the company at £4.5bn.

Sir William has grown Amersham through a string of mergers to 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 the company became, in 1983, the first to be privatised by Margaret Thatcher's government.

Amersham's newer businesses are protein separations, used in drug research and manufacture, and discovery systems, which makes laboratory equipment for medical research.

Potential bidders mentioned during yesterday's frenzied trading session - when eight times the usual number of Amersham shares were traded - included General Electric, the US conglomerate which already has a product development agreement with Amersham.

Max Herrmann, an analyst at ING Financial Markets, said the company would fit with Roche's diagnostics and drug research interests, and also with the diverse hospital supplies business being expanded by Johnson & Johnson, the US medical giant.

But others believed a perceived undervaluation of the smallest business - the troubled discovery systems division - might be behind the approach.

Mark Brewer of Dresdner Kleinwort Wasserstein said the discovery systems industry was in need of consolidation and this was the Amersham division with the most scope for improvement in margins.

He said: "Any bidder would ultimately break up the company, because none of the potential acquirers has a presence in all three of Amersham's markets. But I am not sure it has to be taken over to achieve value for shareholders, as a break-up is something the company itself could do."

Sir William, already one of the FTSE 100's best paid chief executives with a package worth £1.1m last year, would net £1.8m for his shares in the company if a bid went through at close to the current share price. The 56-year-old former Wellcome executive agreed last year to stay on "for the foreseeable future" as chief executive, prompting a potential successor, John Pafield, to leave the business. Friends say Sir William would like to go out on a deal.