The privately-owned packaging group Alert Packaging has increased its stake in publicly quoted packaging group ILP to 7.5 per cent, after buying 647,000 ILP shares in the market over the past two weeks.

Alert previously had a 5.6 per cent stake in ILP. The recent stakebuilding will inevitably lead to speculation that Alert may be planning to merge its business with ILP.

The managing director of Alert, Mr Justin Burke, who is a substantial shareholder in the company, is a brother of former ILP managing director Mr Paul Burke. Mr Justin Burke, who became a non-executive director of ILP in January this year, said Alert felt its stake in ILP was too small and that a stake of around 7.5 per cent was "about right".

He added that Alert has no current plans to increase its stake in ILP.

But the recent stakebuilding by Alert, ILP's recent poor operating performance and the ILP share's disastrous performance since it floated on the London stock market over three years ago are all factors that some in the market believe point to a takeover by Alert or a merger between the two companies. The fact that both companies had common directors and complementary businesses were other factors pointing to a merger, said one market source.

ILP has lurched from one disaster to another since it floated in London at 75p sterling a share. The shares are currently trading at 29p sterling in London and 44 cents in Dublin, valuing the company at €14.9 million (£11.7 million). The company has regained some ground and reported profits of €707,000 (£557,000) in the half-year to June 30th.

Since it floated, ILP has given four separate profits warnings, had a takeover move aborted, seen its managing director Mr Paul Burke depart to a non-executive role and written off £1 million against a joint venture in Northern Ireland which collapsed.

Add in the stock market's antipathy towards small companies and ILP is seen as an ideal candidate to be taken private either through a sale or a management buyout.