Baltimore Technologies, the Irish e-commerce security company, is believed to be in advanced stages of negotiations for a reverse take-over of the British group, Zergo Holdings. The merger of the two companies would make Baltimore part of a larger group, which is quoted on the main London market, giving it access to new capital for development.

Zergo, based in Basingstoke to the south-west of London, had annual turnover of £13.2 million sterling (£14.7 million) in the year to last April, making it somewhat larger than Baltimore, which is believed to have annual sales of between £7 million to £10 million. Zergo made operating profits or £520,000 during the period and recorded profit before tax of £297,000.

Like Baltimore, Zergo is involved in the data security market, offering a range of products from enterprise security to e-commerce, email and file exchange.

In an expansion of its activities, it merged with another British company, Security Domain, last March to move into the fast-growing area of Internet security and e-commerce. Security Domain is involved in the so-called Public Key Infrastructure (PKI) market, which certifies the identity of users and their web-sites, essential for the conduct of trade on the Internet.

Baltimore, one of Ireland's leading software companies, is an international leader in the PKI market and is also involved in other email and e-commerce security products, as well as other special applications.

Founded in 1976, it has expanded rapidly over the past two years following the acquisition of a majority share by financier Mr Dermot Desmond - who currently owns over 60 per cent - and the installation of a new management team led by Mr Fran Rooney. The company is refusing to comment on the ongoing negotiations.

Baltimore is also known to have been in negotiation with a number of leading US players in recent months with a view to forging a strategic alliance. However, it is understood that it will not, as had been thought, finalise any deal in the US immediately and is likely to finalise the deal with Zergo first. Negotiations in the US are still continuing, industry sources say, and they believe that the merged Baltimore/Zergo will actively explore opportunities in this area.

The merger with Zergo, if finalised, would give Baltimore immediate access to a quote on the main London market. However the ultimate target is expected to be a quote on the Nasdaq market in the US, which places high valuations on technology companies.

The financing of the Baltimore/ Zergo deal is not clear. However, it is likely to be a reverse take-over by Baltimore. This means that the Irish company would issue shares to the current shareholders in Zergo, who would probably then own slightly more than 50 per cent of the enlarged group.

For Baltimore, the move, combined with possible further moves in the US, would move it firmly onto the international stage and give it the opportunity to engage in the heavy investment needed to market and develop its products, which are acknowledged as world leaders in their technology area. Zergo was founded in 1988 by Prof Henry Beker, who is still chairman and chief executive officer.