AstraZeneca shares gained 2 percent on Thursday on speculation that U.S. drugmaker Pfizer (NYSE:PFE) was about to return with a higher bid worth more than 53 pounds ($89.9) a share, traders said.
A bid at that level would value Britain's second-biggest pharmaceuticals group at around $113 billion.
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Pfizer's pursuit of AstraZeneca in potentially the biggest ever foreign takeover of a British firm has provoked a political storm, with Prime Minister David Cameron demanding Pfizer give stronger guarantees it will keep jobs and investment in the country.
Pfizer's previous approach, which was promptly rejected by the AstraZeneca board, initially valued the group at $106 billion - but the value of that cash-and-stock offer has since slipped because of a fall in Pfizer shares following weak quarterly results.
A stock market report in the Daily Mail newspaper said many investors believed Pfizer was working with its advisers on a "knockout offer" of more than 53 pounds per share that would be made by the weekend.
"The deal is not there, but it's not off the table either," Dafydd Davies, senior trader at London-based Prime Wealth Group, said.
Pfizer Chief Executive Ian Read is heading to London next week to lay out his case for a merger in front of two parliamentary committees on May 13 and 14.
A Pfizer spokesman had no comment on the company's bid plans.
Investors are betting that a deal will get done, despite the political noise. "One way or another, I think the deal will go ahead," said Beaufort Securities sales trader Basil Petrides.
Analysts at Barclays, who believe Pfizer could make the deal pay at any price up to 56 pounds a share, said in a note to clients last Friday that AstraZeneca shares could fall 21 percent if the U.S. company walked away.
AstraZeneca laid out a defense strategy on Tuesday by flagging up the potential of a range of promising experimental medicines that it said would boost sales by three quarters over the next decade.
Chief Executive Pascal Soriot and his management team are now following up with a series of meetings with leading shareholders to get their feedback. The British group has not ruled out a deal altogether and people familiar with the matter said it was willing to talk if there was a compelling offer.
Soriot, who is credited with reviving the company's drug pipeline, has won the support of a number of investors, including leading shareholder Investor <INVEb.ST>, which owns 4.1 percent and has had a stake in legacy firm Astra since 1924. Investor's Marcus Wallenberg also sits on the drugmaker's board.
Several other large shareholders, however, have told Reuters they would favor engagement with Pfizer to secure a higher offer.