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By Graeme Wearden, 8 August 2005 12:35

NEWS Shares in Marconi rose sharply on Monday morning after the UK telecoms manufacturer confirmed it is in talks about a possible merger or acquisition.

In a statement, Marconi said it was in "discussions with third parties about potential business combinations", as it explored "strategic options with the objective of maximising shareholder value".

Marconi did not disclose who it was talking to but the company is rumoured to be negotiating with Chinese telecoms equipment maker Huawei.

According to The Sunday Times, investment banks representing the two companies are currently in active negotiations. Shares in Marconi rose by more than 10 per cent on Monday morning, to 305p, on the back of this report and Marconi's statement.

Rumours of Huawei taking over Marconi have swept the telecoms industry in recent weeks, since Marconi failed to win a crucial deal to supply equipment for BT's 21st Century network project (21CN). The two firms already have links and resell each other's products

Marconi's share price plunged back in April after it surprisingly missed out on the BT contract. Marconi had hoped to supply the network intelligence for 21CN, through its SoftSwitch product but BT chose a rival product from Ericsson instead.

Huawei has been chosen by BT to supply the technology to link BT's existing voice and data networks with the new IP-based infrastructure. With further 21CN contracts due to be awarded in future months, Marconi's in-house expertise could be valuable to Huawei if it bids for these contracts. And, following its earlier rejection, Marconi may feel that its best chance of competing in the future is as a part of Huawei.

Senior Marconi executives, though, have been bullish about its future chances as an independent body.

Back in June, Marconi's CTO Andy Evans predicted other UK telcos might choose SoftSwitch as a way of building their own next-generation networks faster than BT.

Graeme Wearden writes for ZDNet UK