Building materials group Grafton has continued building its stake in its main competitor in the Irish market, Heiton Holdings, increasing speculation that it may be gearing up for a full bid for its smaller rival. Grafton disclosed yesterday that it had bought another 300,000 Heiton shares, taking its stake to 10.12 per cent.

Grafton first bought into Heiton in mid-March, when it disclosed a 4.9 per cent stake, and has increased that stake to over 10 per cent through a series of purchases in the market. So far, Grafton has spent about £10 million (€12.69 million) assembling this shareholding, and industry sources say the group would not be committing this amount of money to a passive investment in a rival company.

Grafton has refused to comment on its stake-building in Heiton apart from stating that it is for "investment purposes". Some industry sources believe that Grafton is less interested in a hostile bid for Heiton than in enticing the Heiton board into talks on a merger.

Industry sources believe that the move by Grafton may be aimed at ensuring that no third party becomes involved in a bid for Heiton and may be a signal to the British group, Wolseley, that any effort to expand its Irish operations through Heiton will be strongly resisted.