Grafton will have to pay around €7.00 per share if it is to be successful in its attempt to take over the rival Heiton Group, market sources believe.

Analysts and fund managers believe that the two companies are likely to do a deal but at a price significantly above the €6.35 already offered and rejected by the Heiton board.

NCB analyst Mr John Sheehan believes an agreed bid for Heiton from its larger rival is possible but a deal is likely to be done at a price of €7-€7.10 per share, valuing the company at around €350 million.

"Heiton's strategic importance, and its willingness to enter discussions, lead us to expect Grafton to raise its proposed offer, without compromising either returns or earnings," Mr Sheehan said in a research note issued yesterday.

He estimates that an offer of €7.00 per share could boost Grafton's earnings per share (EPS) by 9 per cent in two to three years.

NCB also sees scope for potential cost savings of €3 million and buying benefits of €10 million after two to three years while property disposals could also realise more than €30 million over this time frame.

Mr Stuart Draper at Dolmen Butler Briscoe also believes Grafton can afford to pay €7.00 per share for Heiton and still do a good deal.

"Grafton could comfortably pay up to €7.00 per share and still make it earnings enhancing for the group from year one," Mr Draper said.

Most observers believe Grafton and its executive chairman, Mr Michael Chadwick, will be keen to bring to a conclusion a situation that has been running for some years now.

"Grafton won't want to leave an unfinished item on the table after being invested in Heiton for five years," one fund manager noted. "But to gain control of a large percentage of what is a relatively buoyant market, it has to be a price with a seven in front of it."

Grafton currently boasts about 9 per cent of the builders providers market with Heiton holding 10 per cent. Were it to succeed in its takeover of Heiton, it would add Heiton's 7.5 per cent share of the DIY market to its own 9 per cent share.

According to NCB, competition issues remain to be tested and will hinge on whether the market is defined narrowly or broadly.

Heiton shares closed two cents lower at €6.58 last night.