BERLIN Germany's Krauss-Maffei Wegmann (KMW) downplayed a report that rival Rheinmetall (RHMG.DE) could offer to buy the tank maker, saying it was barred from starting talks as long as it was in merger negotiations with France's Nexter.
KMW and state-owned Nexter this month announced they were in talks to merge in a deal which would create Europe's biggest maker of tanks and other ground armaments.
"In the agreement (with Nexter) both parties commit to not holding merger talks with third parties during a defined time period," a spokesman for KMW said on Friday.
German daily Handelsblatt reported on Friday that German automotive and defense group Rheinmetall was interested in making an offer for KMW and had been in contact with the group at the highest management level.
The report pushed up shares in Rheinmetall, which has shown interest in KMW in the past, by more than 5 percent on hopes that the group could avert the creation of a strong rival and tap significant synergies.
Analysts have said a merger of KMW and Nexter would reduce Rheinmetall's competitive advantage and make it harder for it to win big international contracts, so it would be better off trying to snap up the privately held group itself.
"Also, from a political and regulatory perspective, a tie-up between Rheinmetall and KMW would definitely be easier to realize than a cross-border merger with Nexter, which would require the consent of the German government," MM Warburg analyst Christian Cohrs said.
LBBW analyst Stefan Maichl said Rheinmetall could pay for a takeover of KMW, valued at about 900 million euros, with a capital increase in kind that would give KMW's owners - several German industrial families - a stake in Rheinmetall.
It was unclear, though, whether the families had any interest in talks with Rheinmetall, considering they had turned it down before.
One person familiar with the transaction also warned that a merger of KMW and Rheinmetall was less likely because considerable overlap between the companies would result in at least 2,000 job cuts.
Rheinmetall and KMW have two joint ventures making Boxer armored vehicles and Puma tanks. They also cooperate on other projects.
(Reporting by Sabine Siebold; Additional reporting by Arno Schuetze in Frankfurt and Anneli Palmen in Duesseldorf; Writing by Maria Sheahan; editing by Victoria Bryan and Jason Neely)