Midland telecoms group Marconi yesterday confirmed that it was in talks about possible business tie-ups - but stopped short of confirming takeover interest from Chinese firm Huawei.
The UK group - formed out of industrial conglomerate GEC - said it was in the early stages of discussions about "potential business combinations", adding there was no certainty that a takeover would follow. The brief statement comes the day after it was reported that Huawei was involved in exploratory talks over a possible £600 million takeover of Marconi, which is cutting some 450 jobs at its base in Coventry.
Huawei itself has so far refused to comment on the reports.
But analysts said that the acquisition of Marconi would boost Huawei's European presence by giving it access to Marconi's developed sales and distribution networks, aiding the Chinese firm in its attempts to establish itself as a major brand in developed markets.
"Huawei is looking for sales and distribution channels, as well as someone who understands the European market, and management that is savvy about sales and marketing," said Mark Natkin, managing director of Beijing's Marbridge Consulting.
Frost & Sullivan analyst Wang Yuquan also said: "It's good news. Marconi's sales system could give Huawei a great opportunity to enter the European market."
Shares in Marconi were ten per cent stronger following the earlier speculation and later jumped 16 per cent ahead as the statement appeared to fuel hopes of a deal.
Huawei, a rapidly-expanding firm from southern China, was one of eight suppliers to win work from BT on a £10 billion network upgrade - a contract that eluded Marconi, forcing it to cut more jobs and begin a strategic review.
Analysts believe a sale is the most likely option, as Marconi is seen as being too small to compete with heavyweights such as Ericsson and Siemens.
Marconi, which employs around 4,300 people in the UK, said its business review was ongoing and that it was "continuing to pursue all strategic options with the objective of maximising shareholder value".
Huawei and Marconi already have a relationship after the pair signed an agreement to sell each others' products to their respective customers.
Marconi said the discussions about business combinations featured among a range of alternatives being considered by the company.
In terms of the potential for business tie-ups, Marconi said: "The discussions are at a preliminary stage and there can be no assurance that an offer will ultimately take place."
A deal is likely to stoke the debate about the state of the British manufacturing sector, as Marconi is one of the last major British hi-tech companies operating in the telecommunications industry.
It would also signal another step in the transformation of Chinese companies into global players, following the acquisition of MG Rover by carmaker Nanjing and a
£900 million deal for IBM's computer division by Lenovo.
Established in 1988 and headquartered in Shenzhen, Huawei works with more than 300 telecom carriers, generating contracted sales of $5.58 billion (£3.14 billion) in 2004.
According to one report, a formal proposal from Huawei had yet to be presented to the Marconi board and that finalising a takeover could take many months. However, Huawei may not be the only Chinese firm with its eyes on Marconi.
The Hong Kong-based newpaper Ta Kung Pao yesterday reported that Huawei rival ZTE Corporation has approached Marconi with a competing bid.
Marconi announced higher quarterly losses of £36 million last week, but said the performance had been "solid".