Two days after its chief executive Mr Fran Rooney resigned, Baltimore Technologies has rejected an approach from the privately owned British internet security company, Chantilley Corporation.
The possibility of an early bid for Baltimore was partly responsible for the heavy trading in Baltimore shares, which closed 4p higher on 30p sterling with more than 25 million shares changing hands. On Nasdaq, the news of the approach produced a 40 per cent rise in Baltimore shares and in early trading the share jumped 32 cents to $1.08 and closed up 44 cents on $1.20. If Baltimore can maintain its Nasdaq price above $1, then its threatened delisting from Nasdaq may not materialise.
Market sources are sceptical about the approach from Chantilley and particularly how a private company could propose an all-share offer for a public company like Baltimore.
In a statement, Baltimore said that it had received a letter from Chantilley seeking a meeting to discuss "a possible combination of the two companies which may result in an offer". Baltimore said that the Chantilley approach only envisaged an all-paper transaction.
Baltimore's view is that the letter from Chantilley does not constitute an offer and that the approach is unlikely to result in an offer that the board could recommend to shareholders. Baltimore has told Chantilley that it is not prepared to meet it until a firm proposal is made. No Baltimore spokesman was available to add to the brief statement.
Analysts have been speculating on possible bids for Baltimore but they were thinking more of companies like RSA, Verisign, Entrust, Microsoft or IBM rather than a small private company like Chantilley.
Chantilley itself was formed by a British mathematician, Dr Bill Hawthorne.
Dr Hawthorne is the majority shareholder in the company which has been backed by Cavendish Management Resources, a venture capital firm which represents 500 wealthy private investors and which specialises in smaller companies.
In early 1990, there was speculation that Chantilley would float on the Nasdaq market with a market valuation of some £600 million sterling (€985 million). But that valuation was at the peak of the dotcom boom and Chantilley's value is now likely to be only a fraction of that.
Chantilley's security products are broadly similar to those produced by Baltimore and include automated card security, automatic e-mail security, network security and prevention of fraud by encryption.
Chantilley, which was rebuffed when it first talked to Baltimore about a possible merger just over 12 months ago, said it was taking the unconventional route of publicising its approach so as to be able to appeal directly to Baltimore's shareholders.
"Baltimore was slightly arrogant at that time and was not very interested in having conversations with us," said Mr Mike Downey, finance director. "They may not be so arrogant this time."
Chantilley was set up eight years ago to exploit the expertise of Dr Hawthorne, an encryption specialist. Mr Downey said it had been profitable for most of that time and employs 20 people but does not disclose sales or profits. It claims that its technology had a lead on the encryption methods currently in use by companies including Baltimore.
According to Mr Downey, a takeover of Baltimore could result in a reverse takeover deal, he said, and would allow the group to list on the London Stock Exchange.
Commenting on what his plans were following Baltimore's statement, he said the group would not put in a firm offer.
"But we hope people will put pressure on the board to open discussions," he said.
The general reaction among analysts was that Chantilley's approach is opportunistic. While there are clear similarities between the two businesses, they are also radically different in their corporate structure.
--(Additional reporting, Financial Times Service/Reuters)
