NEW YORK (FORTUNE) - Can anything go smoothly at Janus? A source close to the company says that the mutual fund company, which has a turbulent history, has been contemplating a management buyout.

This source says that Janus (Research) hired Morgan Stanley last summer, and has been working on a deal. The board has been willing to look at the possibility of a buyout, and the notion has strong support among the firm's all-important senior portfolio managers, says the source.

But there's a problem. Janus's stock, which was around $15 when discussions started, is now around $20 per share -- which is higher than the roughly $17 per share that the source says is the deal price.

"We don't comment on rumor and speculation," says a Janus spokeswoman.

Janus, of course, is the firm that ballooned in size during the stock market bubble -- and crashed when the bubble burst. At its peak, Janus had over $300 billion in assets, but performance in many of its funds was abysmal, and investors bolted. Janus ended the third quarter of 2005 with $139 billion under management.

To top off the bad performance, Janus was also embroiled in the mutual fund trading scandal, and in 2004 had to pay $225 million to settle with regulators over allegations that it had permitted market timing in its funds. The stock price sunk from a high of almost $54 in the fall of 2000 to a low of just under $13 on April 29, 2005. In mid-2004, the firm brought in new management. Steven Scheid, a former Charles Schwab executive, took over as CEO, and Gary Black, who in his former life was a famous tobacco analyst, became the chief investment officer.

Things have clearly been getting better on a number of fronts. Janus reported decent third-quarter earnings of 14 cents a share, but as Scheid said on the October 26 conference call, "clearly the bigger news here today is that our flows were positive for the first time in two and a half years, and the best flows that we've had in over five years...the company has reached a level of stability that we haven't seen in a number of years."

He noted that on a one-year performance basis, seven of Janus's funds were now in the top 2 percent of their Lipper category. On that call, Scheid also announced that the well-respected Black would take over the CEO slot in early 2006. And Janus's stock performance has been nothing short of remarkable. It closed at $19.82 on the Friday after Thanksgiving, up 53 percent from its low. In October, Janus was the best performing stock in the S&P 500.

But the stock has not just run up because the company's fundamentals have improved. There's also been rampant speculation that a deal is in the works. The speculation reached a fever pitch at the time of the third-quarter conference call, when Scheid announced that a director who "disagreed with some of the strategies that the board was pursuing to increase shareholder value" would resign.

Later that day, Janus filed the resignation letter written by that director, Robert N. Burt, with the SEC. In the letter, Burt said that after "discussing this situation with a few peers on other boards," he decided to resign. (Burt also serves on the boards of Phelps Dodge and Pfizer.) A few days later, The Wall Street Journal ran a story about how Janus was "again the subject of takeover talk," and there's been chatter on the message boards about an imminent takeover. Of course now, enough people are involved in the deal, from bankers to lawyers, that the chatter may not always be just speculation.

Indeed, the source says that hedge funds that make their money betting on mergers are now playing the possibility of a deal. The ironic thing, of course, is that if it is these funds that have pushed Janus's price higher, then they are going to scuttle the very deal they are betting on because the stock is now $3 above the offer -- which the source says is not going higher.

"It's a sign of the times," this person says.