Rheinmetall is in talks with satellite maker OHB about a satellite project for the German armed forces, a person familiar with the talks told Reuters on Monday, boosting OHB's stock.
Germany's OHB confirmed in a statement only that it was in discussions with Rheinmetall on joint bids for unspecified state orders.
"OHB confirms ongoing talks with the Rheinmetall Group regarding a cooperation for participation in possible public procurement processes," it said.
The collaboration talks, first reported by the Financial Times, come amid a consolidation drive in the European satellite industry. The continent's top three space firms in October (optimistically) agreed to combine their satellite businesses to better compete with Elon Musk's dominant Starlink.
The tie-up plans by Airbus, Thales and Leonardo have prompted OHB to complain it could get sidelined by the deal.
OHB shares surged more than 30 per cent to a record high as of 14:36 GMT.
Rheinmetall declined to comment while the German defence ministry said it would disclose procurement projects only after parliamentary clearance.
The FT said Rheinmetall and OHB were considering a joint bid to build a low-earth-orbit internet service similar to Starlink for the German armed forces.
German newspaper Handelsblatt separately cited several people familiar with the matter as saying the government order could be worth up to 10 billion euros ($12 billion) and Airbus would vie for it as well.
The paper also said the project would comprise up to 200 satellites that would help German soldiers, tanks and naval vessels to communicate from about 2029.
(Reporting by Matthias Inverardi; writing by Miranda Murray and Ludwig Burger; editing by Sabine Wollrab, Thomas Seythal, Tomasz Janowski and Baird Maritime)