The deal was instigated by Mr Sugar, who stands to pocket pounds 80m from the takeover and wants to concentrate on his new-found passion for the money- spinning world of Premier League football where he already controls and chairs Tottenham Hotspur.
Assuming all goes well with Psion's due diligence over the next three weeks, the maker of the best-selling Series 3 organiser will bring to an end the uncomfortable stand-off between Amstrad and the City. Relations have never recovered from Mr Sugar's failed attempt in 1992 to take Amstrad private at the equivalent of 150p a share.
Psion said yesterday it was in negotiations with Amstrad that would lead to a deal worth at least 200p a share. Following any deal, a joint statement from the companies said yesterday, Mr Sugar will own about 15 per cent of the enlarged group. He will not join Psion's board although a possible "deal-making" role is being considered.
David Potter, an academic South African with a doctorate in mathematical physics, will remain as chairman and chief executive of the enlarged group he founded in 1980. Yesterday he said: "We are not buying Amstrad as perceived by its brand and name. Amstrad is in ashes. We are buying the phoenix in those ashes."
He said Psion's main interest in Amstrad lay in Dancall, the company's mobile phone manufacturing operation that was one of the first cellular phone businesses to develop the GSM digital standard. He believes Dancall will help in the fusion of portable computers and mobile telephony.
Mr Potter said Mr Sugar approached Psion about two months ago with a view to selling Amstrad. Psion was initially sceptical about the prospects of putting the two businesses together but became increasingly enthusiastic as the deal was explored.
Analysts broadly welcomed the move, which will almost double the size of Psion. After a meteoric rise in its share price, the proposed all share deal is seen as an efficient way of getting hold of Amstrad's pounds 85m cash pile as well as its trading businesses. They reckon Amstrad should fetch up to 250p a share on a sum-of-the-parts basis.
But Andrew Bryant at NatWest warned: "David Potter has got quite a job selling this to Psion's shareholders. It is not a done deal."
Psion, which plunged into the red in 1991 after problems with its range of hand-held computers, has recovered sharply since on the back of soaring demand for its products which shoehorn the computing power of a desktop machine into a case little more than the size of a pocket diary.
Profits of pounds 1.42m in 1992 increased to pounds 11.7m in the year to last December and the consensus of brokers' forecasts now points to pounds 15.8m before tax this year and more than pounds 20m in 1997.
Since late 1992, when Psion's shares fell as low as 23p, they have outperformed the market by a massive margin, growing 19-fold by the time they peaked last month at 468p. Yesterday worries about the impact of the Amstrad deal sent the shares 25p lower to 350p.
Psion is also attracted by Viglen, Amstrad's successful direct-sales computer manufacturer, which is already profitable and would allow Psion to develop new products and widen the spread of its business. But Psion is unlikely to want Amstrad's core consumer electronics business, which has struggled for several years in the highly competitive markets for commodity products such as satellite dishes.
Shares in Amstrad, a huge success in the 1980s when Alan Sugar brought computers to the masses with a range of basic word-processing machines, rose 37p to 185p on news of the talks. In the last nine months they have tumbled from nearly 260p as the City digested a diet of bad news.Reuse content