Grafton Group confirmed yesterday that it was the buyer of a 5.3 per cent stake in rival building materials group Heiton on Wednesday.

The purchase of the block of 2.6 million shares, at a cost of around €13 million, takes Grafton's stake to 29 per cent, just below the level at which it would be forced to make an outright bid for Heiton.

Both Grafton and Heiton declined to comment on the reasons behind the stake-building yesterday. But market observers believe it may be related to the decision by Finnish group UPM-Kymmene to put its Irish subsidiary, Brooks Group, up for sale.

Brooks, which recorded profits of around €7 million on turnover of €150 million, is the third largest firm of builders' merchants in the Irish market and there has been speculation that Grafton and Heiton, the market leaders, are interested in acquiring it.

Analysts said yesterday that Grafton's decision could be an attempt to strengthen its negotiating position or even to warn Heiton off.

Were Heiton to buy Brooks, which could fetch as much as €100 million to €120 million, it would need approval from a majority of its shareholders.

Grafton would be in a better position to block such a move with a 29 per cent stake than with a 23.9 per cent shareholding, were it so inclined.

"It's a very ambiguous move. You could read a lot of things into it," one market source said.

Grafton has never clarified the reasons for its decision to build a stake in Heiton which it treats as an investment in its accounts.

Some observers view the acquisition of the shareholding, at an average price of €3.24 per share, as a defensive move to stop larger British players coming into the Irish market.

For a period, the market also expected Grafton to launch a bid for its rival but an offer has yet to materialise and any such deal would be likely to attract the interest of the Competition Authority. Analysts queried why Grafton would launch a bid for Heiton now, when the shares are trading at €5, rather than two years ago when the stock was trading around €2.

They also noted that Grafton, led by its executive chairman Michael Chadwick, is currently focusing its resources on participating in consolidation in the British market.

"It's hard to second guess them," said one analyst. "But whatever the reason, you can be pretty much certain it is well thought out."

The fate of Brooks may shed more light on the latest development between Grafton and Heiton. The sales process at Brooks is believed to have been under way for some weeks but is expected to take some months to complete. In addition to Grafton and Heiton's interest, there has been talk of a management buyout while Brooks may also attract the attention of some of the larger British players like Wolseley.