Shares in Baltimore Technologies, the Internet security firm, gained almost 10 per cent in London yesterday despite denials that it was in "advanced" takeover talks.
A spokeswoman for the Dublin-based company would not comment when asked whether it was in preliminary discussions or whether it anticipated entering such talks soon.
Observers said the rise reflected a belief in the market that such a development was very likely.
A trader said: "They're putting up the white flag. It makes sense. That's the best way forward for shareholders at the moment."
However, Baltimore's spokeswoman said management remained focused on developing a restructuring plan for the company. Baltimore is expected to include significant job cuts in that plan.
The company, which develops products to ensure that Internet transactions are not compromised, will publish second-quarter trading results next month. The results are expected to be poor - Baltimore has already issued three profit warnings this year.
Its chief executive, Mr Fran Rooney, resigned last week in a move that prompted a reverse takeover approach from Chantilley, an unlisted British encryption company. The approach was rejected.
In a note yesterday Merrion Stockbrokers analyst Mr John Coolican said the Chantilley approach was likely to be no more than an opening shot in the "Baltimore takeover game".
Such an outcome was the company's best hope. "It's now a question of who and at what price."
Mr Coolican added: "The company is clearly in play. The early announcement on July 5th of poor trading results leaves no doubt about the disappearing prospects for Baltimore as an independent company.
"Baltimore, as it stands, is unlikely to be able to attract equity funding, through a rights issue or otherwise. Our projections show the company exhausting its cash resources by mid-2002 and its cash flow is unlikely to turn positive until at least 2004."
Baltimore yesterday repeated denials of reports that it was in advanced takeover talks with a US firm, Computer Associates, or any other company. A Computer Associates spokeswoman declined to comment.
Once the only Irish company on the FT100 index, its shares traded as high as £13.75 sterling last year. The stock closed yesterday at 35p, 3p higher than on Friday.
A trader said the market believed a deal was possible at 50p per share. Such a takeover would have cost up to £8 per share only nine months ago, he added.
Mr Coolican's "best estimate" was of a 49p per share takeover price.
"For some larger technology companies, Beltimore's technology and market presence could offer attractions, but there are clear limits on the price that anybody is now likely to pay."
