Aaapico Hitech's chairman was quoted by the Thai-language news agency Infoquest as saying the company's financial adviser would provide an opinion about pricing and other details.

He said the deal would come as a boon to both parties because both would gain from economies of scale.

Earlier, there were market rumours Aapice Hitech would acquire a 25-per-cent stake in KPN. If that happened, the deal would be worth Bt430 million, based on its market closing price of Bt17.20 per share.

KGI Securities (Thailand) said in a note the deal was possible, since Aapico Hitech had cash on hand of about Bt1.09 billion and always found strategic partners to expand into global markets.

The brokerage said the deal would help both of them gain new customers and new products.

KPN, in which the major shareholder is the Narongdej family, is a manufacturer of automotive parts and plastics used in car and motorcycle assembly, electrical appliances and household appliances. Customers include a number of major manufacturers: Ford, Mazda, Yamaha, Toyota, Honda, TRW Steering and Suspension, GKH Driveshafts and Ikea.

Aapico Hitech is the largest car-assembly jig designer and manufacturer in Southeast Asia. It also produces stamping dies, floor parts, pillars, brackets, clips, fuel tanks and door-check links.

KGI foresees four scenarios for the deal.

The first is a 100-per-cent takeover of KPN through Aapico Hitech's capital increase. Under this scenario, the broker estimates that the firm would need to raise about Bt630 million worth of capital, which would create a dilution effect of about 11.5 per cent.

 The second is a 100-per-cent takeover of KPN through Aapico Hitech's debt financing.

"We see this scenario as more probable than the first one, since if Aapico Hitech had additional debt, its debt-to-equity ratio would increase to only 0.25, which is a comfortable level. However, we do not believe it is that important for Aapico Hitech to control KPN Automotive completely," said the broker.

"Moreover, KPN's outlook is bright for its forging, logistics and plastic segments. Therefore, a 25-per-cent takeover to create a business partnership seems like a win-win situation."

The third scenario is acquiring a 25-per-cent stake in KPN Automotive using Bt430 million worth of internal cash to finance the deal.

And last but not least is acquiring a 25-per-cent stake through a share swap at a ratio of 1:1.

Aapico Hitech has already bought back 29.24 million shares, repurchased starting from May 30. The treasury stock will run through November 29.

"This method is the most likely. If this occurs, there will only be a change in the shareholding structure.

Aapico Hitech would take the equity method from KPN's results (estimates are up 9 per cent for Aapico Hitech's 2007 earnings), while KPN would receive dividend income, excluding their long-term synergy from the deal," the broker said.

Aapico Hitech's second-quarter net profit plunged to Bt86.53 million, from Bt185.26 million in the same period last year. KPN saw its second-quarter net profit rise to Bt49.83 million, from Bt45.49 million in the same period last year.

KPN shares remained unchanged yesterday at Bt17.20. Aapico Hitech rose 2.91 per cent to Bt17.50.