Chemring Group Plc (CHG.L) said it had received a preliminary expression of interest from private equity firm Carlyle Group (CG.O), sending the military equipment maker's shares up 26 percent.
The company, which has a market value of 605.8 million pounds ($953.66 million), declined to comment on the status of the approach and whether it was considering it.
Carlyle has until September 14 to either make a firm bid for Chemring or pull out, as per the takeover code.
Chemring and its peers are facing the challenge of coping with lower defence spending in the United States and Europe as governments tighten their belts in an effort to rein in budget deficits.
The threat of a second round of cuts to U.S. defence spending under a process known as sequestration has further weighed on investor sentiment, prompting speculation that the company is an attractive buyout candidate.
However, the company -- which makes flares, equipment to detect improvised explosive devices and the mechanisms used in ejection seats -- said in June that it was on track to meet its full-year expectations and its order book was up 14 percent at 1 billion pounds since October 2011.
Chemring shares have fallen 21 percent so far this year leading to speculation last month that larger American rival General Dynamics (GD.N) may have been readying a bid.
Shares in the company were up 23 percent at 384.9 pence at 1522 GMT on Friday on the London Stock Exchange. ($1 = 0.6352 British pounds)
This article is copyrighted by Reuters
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