Shares in Eircom strengthened yesterday on a belief that Swisscom is on the verge of making a formal bid for the company.

The stock gained 4.55 per cent in a weak market, where trade was overshadowed by the Thanksgiving holiday in the US.

Sources said Swisscom was very close to completing due diligence on Eircom, and has found nothing that would dissuade it from making a bid for the company. The market expects any bid to come at €2.42 or above. Shares in Eircom closed at €2.30 last night, up 10 cent on the day.

The increase was also driven by news that the Swiss government plans to reduce its stake in Swisscom so that the company can "improve its ability to enter into alliances".

Despite considerable political opposition, the government wants to sell 16 per cent of Swisscom, thus reducing its holding from 66 to 50 per cent. Further sales will take at least two years because they will require legislation.

Separately, Swisscom is said to be in discussions with buyout firms about divesting parts of Danish telecoms firm, TDC, should it make a bid for the company.

If Swisscom does proceed with a bid for the Danish operator, it is likely to need to sell off TDC's Swiss business, called Sunrise, for regulatory purposes, before the authorities would allow any deal to go ahead. But it is thought the Swiss operator could also carve out other parts of the business as part of any deal.

"They're getting other things lined up first," one source said. "They're working on their own timetable."

A group of five private equity firms have submitted an $11 billion-plus (€9 billion-plus) bid for the Danish company and are rushing to agree a deal before a rival buyout group, or Swisscom, submits a higher bid.

Sources close to the matter have said that Swisscom has submitted a non-binding bid for TDC but is not yet looking through TDC's books because it wants to resolve a number of key issues first, before making its approach.

Analysts believe Swisscom has ample capacity to buy both Eircom and TDC should it choose to do so.

The company's chief executive, Jens Alder, told a conference in Barcelona last week that his cash-rich telecoms group's current tie-up discussions with Eircom did not rule out other bid talks.

The prospect of a bid for Eircom seemed to be dimming last week when it emerged that Eircom had lost out to Smart Telecom in the competition for the latest 3G licence. Analysts pointed out, however, that Eircom could still enter the 3G market as a virtual operator.