Royal Doulton has slowed a sales slump

Stoke-based Doulton, which is to close its last remaining current UK factory next year, said it was in "advanced discussions" with Waterford.

Both firms said any offer was expected to value Doulton at about �40m ($73m).

The news sent Doulton's shares racing ahead by 34%, but Waterford, which also issued a profits warning, saw its stock slump by more than 30% in Dublin.

Waterford Wedgwood warned that profits for the first half of the year would be significantly below market expectations.

Waterford's shares were also hit after it announced plans for a surprise rights issue, through which it is seeking to raise 100m euros ($126m; �69m).

Cross ownership

The two companies said the takeover talks had moved to the stage where Waterford had already studied Doulton's books, but certain matters remained to be resolved.

"Consequently there can be no certainty that a formal offer will be made," a statement from the two firms said.

"A further announcement will be made in due course."

Waterford Wedgwood currently holds a 21.16% stake in Doulton, while Waterford's chairman, Sir Anthony O'Reilly, and deputy chairman, Peter John Goulandris, own a further 3.99% of the shares between them.

Doulton said in September that it had halted falling sales following an overhaul which included the closure of its last UK factory in Burslem, Stoke-on-Trent.

It said like-for-like revenues were down by only 1% in the six months to June 30.

Doulton also announced last month that it plans to build a new factory and visitor centre in Stoke to make limited-edition products.