Japan's Brother Industries Ltd (6448.T) will buy British barcode-printer maker Domino Printing Sciences Plc DOPR.L for about 1.03 billion pounds in cash ($1.55 billion) to expand its industrial printing range, the companies said.
Domino, which is fighting bigger rivals with enhanced financial firepower, said its shareholders will get 915 pence per share, a 27 percent premium to the stock's Tuesday close.
Domino shares rose to a record 956 pence, well above the recommended offer price, hinting at the possibility of a higher bid. The stock was the biggest gainer on the London Stock Exchange on Wednesday morning.
"There's also potential for a rival bid to come in, probably from a U.S. player, given how neatly Domino would fit into a U.S. portfolio given that's where it is weaker," Peel Hunt analyst Henry Carver told Reuters.
Some analysts named Danaher Corp (DHR.N) and Dover Corp (DOV.N) as possible bidders. The companies could not immediately be reached for comment.
Domino's products had been leading the digital label printing market in certain areas, and a rival bid wouldn't be surprising, said UBS analyst Robbie Capp in a note.
"It has become increasingly clear that maintaining its position in the enlarged markets will require Domino to find the appropriate partner," Domino Chairman Peter Byrom said.
Brother Industries plans to finance the deal through debt or existing cash. It has a bridge facility with Citibank and Citibank Japan under which 1.073 billion pounds would be available for financing the acquisition.
Domino shareholders will also get the 14.76 pence-per-share final dividend announced in December. They can opt to receive loan notes issued by Brother instead of the cash offer.
Brother, which makes equipment ranging from sewing machines and printers to online karaoke systems, gets about 70 percent of its sales from its printing and solutions unit.
Domino, which makes printers to stamp barcodes and expiry dates on food items, beverage cans and medicines, will operate as a standalone division post the deal, the companies said.
Domino warned in June that 2015 results would be hurt by pricing pressure in Asia and other developing markets and higher research and development expenses.
Sky News reported on Tuesday Domino had agreed to a deal with a Japanese company, adding that the company had held talks with some U.S.-based competitors in recent months.
Citi advised Brother, while Rothschild was Domino's financial adviser.
($1 = 0.6637 pounds)
(Reporting By Mamidipudi Soumithri in Bengaluru; Editing by Anupama Dwivedi and Gopakumar Warrier)