Waste management group Biffa - demerged from Birmingham-based Severn Trent last year - yesterday moved closer to a takeover after it said it would be prepared to accept a £1.22 billion private equity offer.
It has given buy-out firms Montagu and Hg Capital the green light to carry out due diligence work, ahead of a potential offer worth 350p a share.
Biffa rejected two earlier approaches worth 330p a share, but yesterday said its board backed the new price and additional pledge from the bidders to retain the company's half-year dividend payout of 2.3p a share.
The company said the proposal was subject to a number of pre-conditions, including completion of due diligence, adding that there was no certainty that the revised proposal would lead to an offer.
But it confirmed it had entered into a non-solicitation and inducement fee agreement with the consortium for the purposes of making an offer for the company.
Kevin Lapwood, a research analyst at Seymour Pierce stockbrokers, said he believed the new price offered by the funds was not enough.
He added: "There are still several infrastructure investors that would pay more and we still believe that a price closer to 400p is more realistic."
The Buckinghamshire-based company, which has 42 treatment and recycling centres and 33 landfill sites, counts around 75,000 industrial and commercial businesses and over one million households among its customers.
The business has launched national paper, card and glass collections and recycling services for its industrial and commercial customers, and is offering a treatment service to firms who do not want to pre-sort their own rubbish to meet the rules.
The group has fallen under the spotlight as infrastructure funds attracted by the utility sector's steady revenues eye possible takeover targets.
Montagu's portfolio previously included Cory Environmental, which it sold to infrastructure investors in March after acquiring the waste business from Exel in 2005. Cory has contracts for recycling, street cleaning and waste collection across the UK.
Shares closed up 20.75p at 338.5p.