Gallaher, the cigarette manufacturer that employs about 1,100 people in Ireland, could find itself at the centre of a bidding war following confirmation by the company that it had had received a preliminary approach.

Although Gallaher declined to name the suitor, it is understood that Japan Tobacco, the world's third-largest tobacco group, is behind the takeover approach and that the companies have met and talks are at an early stage.

"The approach is preliminary and there can be no assurance that any offer will be made," Gallaher said in a statement.

The Franco-Spanish tobacco giant Altadis is also rumoured to be preparing a bid for the manufacturer of Ireland's most popular cigarette brand, Benson & Hedges, while some reports say that rivals British American Tobacco and Altria's Philip Morris may table counter offers.

A bid by Altadis is seen as viable because it would not face the same regulatory obstacles as other potential bidders, given its relatively small profile in the British tobacco market. Altria would not comment on whether it would bid for Gallaher, which is the fifth largest tobacco company in the world - and the fourth biggest in Europe based on billions of cigarettes sold each year.

Valued at about £7.2 billion (€10.6 billion) including debt, it is seen as the most likely target in the UK tobacco sector. Pretax profits at the company for the six months to June were up 14.7 per cent to £259 million, while sales were up 2.1 per cent to £4.03 billion.

Gallaher employs about 1,100 people in Tallaght in Dublin and in Ballymena, Co Antrim. The company moved its manufacturing to the North in 2003, but kept a customer service, sales and marketing and human resources operation in Dublin, where it employs about 70 people.

It estimates its total contribution to Ireland's economy at €74 million in wages and another €40 million related to other costs.

Shares in Gallaher surged by more than 20 per cent yesterday on the back of the takeover bid.