Shares in both Grafton and Heiton eased a touch yesterday, as the market continued to sniff around for white smoke on a deal between the two merchanting firms.

There is growing sense among observers that an agreed offer will emerge before long, with the two firms believed to be involved in intense negotiations on price.

The pressure on the two parties to reach an accommodation will have grown over the past few days, as a deadline set by the Takeover Panel approaches.

The panel told Grafton two weeks ago that it must either table an offer for Heiton by August 6th, or walk away from the deal for at least 12 months.

Since then, shares in both firms have remained strong, indicating that the market is in favour of a deal at the right price.

It is possible that the Takeover Panel could extend Friday's deadline if it believes genuine negotiations are continuing.

Heiton has already dismissed Grafton's first public offer of €6.35 (or €6.25 in the wake of Heiton's dividend payout) as inadequate.

Likewise, observers doubt Grafton's willingness to pay out the €7.00-plus valuation that analysts have placed on Heiton. A point in between the two however - possibly around €6.70 - is seen as acceptable.

Neither Grafton nor Heiton would comment on the matter last night.

Heiton's shares closed five cents lower at €6.25 yesterday, after reaching €6.35. Grafton fell five cents to €6.75.