Takeover fever fuels biggest rise in shares for two and a half years

The £17.7bn acquisition of the mobile group O2 by the Spanish telecoms giant Telefonica marked the biggest takeover of a British firm since France Telecom shelled out £31bn for Orange in 2000, according to data company Dealogic. The value of UK-targeted cross-border takeover deals has shot up to $237bn so far this year, the highest since the dotcom boom of 2000.

Aside from the O2 news, shares in the British ports operator P&O surged by 30 per cent after a takeover approach from the Gulf state-owned Dubai Ports World sparked hopes of a bidding war. Pilkington, the glass maker, also received an approach - from Japan's Nippon Sheet Glass - that some say could be pitched at about £2bn. On top of that came the news that the building company Mowlem was also in takeover talks, and the discount retailer Peacock unveiled a £404.4m management buyout.

The announcements led to frenzied takeover speculation in the City, involving companies as diverse as the Anglo-US fund manager Amvescap, the catering giant Compass and the London Stock Exchange.

The LSE has been the target of a long-running bid battle, and a keenly awaited verdict from the Competition Commission on takeover proposals from its continental rivals Euronext and Deutsche Börse could come later this week.

In August, Australia's top investment bank, Macquarie, which specialises in buying up infrastructure, airport and media assets around the world and has gone on a spending spree in Britain recently, also threw its hat in the ring, and there has been intense speculation on when it will table an offer for the LSE.

There is plenty of other evidence that UK companies are increasingly attracting - and often trying to fight off - foreign suitors. Last month Deutsche Post announced the details of its £3.7bn takeover bid for Britain's Exel logistics business, and in July France's Pernod-Ricard completed the £7.6bn takeover of the drinks group Allied Domecq.

Among the main reasons behind this explosion of interest in UK businesses, particularly from Europe, is Britain's regulatory framework. In contrast to competition rules in other countries, the UK Takeover Code facilitates foreign takeovers of British companies.

Philip Yates, head of global mergers and acquisitions at Merrill Lynch, who is advising O2, explained: "Britain has always had an open approach. The UK framework is certainly capable of allowing, and possibly encouraging, people to come in. This isn't the case in other market economies."

He added that O2's takeover by Telefonica was part of a general consolidation wave within the European mobile phone industry.

Justin Urquhart Stewart, head of Seven Investment Management, said: "We're much more open than anyone else. Corporate governance is pretty open and clear - we don't have the protectionist mechanism that you see in French companies."

He pointed to the different ownership structure of European companies, and explained that in the post-war era, many were reconstructed with trade union or Landesbank involvement (in Germany), leading to several tiers of different shareholdings that make it hard for takeovers to succeed.

Moreover, UK plc is perceived to be in relatively good health compared with the rest of Europe. During the recent stock market downturn, companies stripped out costs and have come out much leaner. Henk Potts, of Barclays Stockbrokers, said: "The domestic problems that European companies are facing - slow economic growth, weak domestic demand, poor consumer sentiment, high unemployment - is pushing them to buy assets that are in good shape elsewhere."

Indeed, unlike in past takeover battles that have often centred on companies in poor shape (Santander's takeover of Abbey last year, for example), foreign acquirers are now often having to pay full prices for British companies with strong growth performances. Moreover, like banking, Britain's telecoms industry is susceptible to cross-border takeovers because it is dominated by a handful of big players banned from bidding for each other by competition rules.

Despite the cross-border deal-making, Mr Yates at Merrill judged: "It would be wrong to assume there's an irreversible trend for UK plc to be taken out by foreign bidders."