Jeremy Warner's Outlook: Now everyone is a target as bid fever takes hold in a still undervalued stock market

Eastern promise: Tata to bid for Corus; Believe it if you will: Ryanair tilts at Lingus

Bid fever is gripping the stock market once more, and it is coming in all shapes and sizes. Confirmation that the sprawling family-controlled conglomerate the Tata Group of India may be interested in bidding for Corus concerns the same rationale that drove Mittal Steel to acquire Arcelor - that of marrying cheap sources of commodity steel and raw materials in the developing world with the higher-value stuff and access to developed markets of European producers.

Ryanair's bid for Aer Lingus is to do with Michael O'Leary, Ryanair's fiery chief executive, attempting to consolidate his position in low-cost, short-haul air travel, while at the same time attempting to take his business model into the long-haul market that he has so far spurned.

Takeover interest in Viridian, Northern Ireland's main electricity supplier, is presumably another example of the growing appetite among private equity and infrastructure funds for utility assets. I say presumably, because we don't yet know who the bidder is. As for Ukbetting, again presumably this is to do with the consolidation forced on the industry by America's ban on payments to online gaming sites. PartyGaming and others that have relied heavily on the US market for their revenues must now attempt to bulk up elsewhere.

Yet though these are all very different bid situations, there is one underlying theme. None of these bidders would be buying if they didn't think the market, despite its gains over the past three years, wasn't still fundamentally cheap. Bid fever breaks out when acquirers start to believe that there's no point in waiting any longer on the off-chance that valuations might decline. To the contrary, they fear that by waiting they may further disadvantage themselves as prices rise higher still. As such, bid fever is a reasonably good indicator of growing confidence in the outlook both for share prices, and by extension corporate profits.

Are these corporate predators right to be so bullish?

Unfortunately, merger mania may not be as good an indicator of further stock market gains as it might seem. Bid fever is just as likely to break out at the top of the market as at its bottom, or midway through. It reflects only what investors believe to be true, not what in fact may be coming down the line. And although valuations don't look expensive by historic standards, you have to wonder how much more scope there is for earnings growth with corporate profits and margins already at record levels.

Still, for the moment, it is time to make hay. The stock-market wobble of May, when many commentators said it presaged the start of another bear market (not this one, I'm pleased to say), now seems but a distant memory as the conviction grows that the world economy is heading for a soft landing, not the hard one widely feared just four months back. To judge by yesterday's outbreak of M & A activity, investors have wholly regained their appetite for risk.

Eastern promise: Tata to bid for Corus

Tata Steel may have been forced out into the open in admitting an interest in Corus, the Anglo-Dutch steel producer, but it appears nowhere near making a formal bid, and there has to be a degree of scepticism as to whether it ever will.

The industrial logic of such a get-together is undeniable. With rapid economic growth, India is about to become a net importer of steel, rather in the way that China used to be. Though Tata and other Indian steel producers are planning dramatic increases in capacity over the next five to ten years, there is a short-term need for large quantities of imported steel, particularly at the added-value end of the market which Corus specialises in.

At the same time, Tata's access to cheap sources of iron ore, in tandem with its ability to supply Corus with low-cost commodity steel, could be just what Corus is looking for. Corus has advertised its need for a deal with one of the fast-growing producers of the emerging markets high and low. It even got halfway up the aisle with CSN of Brazil before both parties got cold feet and scarpered. Quite apart from Tata, Corus's chief executive, Philippe Varin, is thought to have held talks with several of Russia's main steel producers and with a number of Tata's competitors in India. The talks with Tata have apparently been ongoing for some months now, yet price and detail have yet to be properly addressed.

How would any deal work? Tata is India's biggest business dynasty by some way, spanning tea, lorry manufacturing, mobile telephony, hotels, and much else besides. Yet the bit of the empire Corus has been in talks with, Tata Steel, is only about a quarter of the size of Corus in terms of sales. The stock-market capitalisations of the two companies are a better match; steel-making is higher margin in India than in Europe, making Tata a much more profitable company than Corus, notwithstanding its lower levels of production.

All the same, for Tata to bid for Corus, either in shares or cash, would be a mighty bite for this relative tiddler of the global steel market. It would also be far and away India's largest-ever outward investment.

Would British investors accept paper in a Mumbai-quoted steel maker? India has a much better record than China in recognising intellectual property rights and the law of contract. Its corporate governance is also second to none in the developing world. Even so, it is not clear Corus shareholders would welcome a takeover bid made in Tata Steel equity. Nor is it clear that the Tata family would want to see its controlling 25 per cent stake diluted.

As it happens, it would make a great deal more sense for Corus to turn the tables and bid for Tata, rules on foreign inward investment allowing. What that would do for a Corus share price which has been buoyed up by hopes that it will be Corus that is bid for, not Corus that does the bidding, is anyone's guess.

Believe it if you will: Ryanair tilts at Lingus

I had to pinch myself on hearing the news that Ryanair is bidding for Aer Lingus. Was this not just another of Michael O'Leary's publicity stunts? It is little more than a week since Aer Lingus was floated on the stock market, so Mr O'Leary's assault seemed to have more to do with sticking two fingers up at the Irish government, with whom he is in belligerent dispute over expansion plans at Dublin airport, than anything else.

Mr O'Leary has always insisted he's got no interest in long haul. What, then, is he doing bidding for Ireland's long-haul carrier? The explanation he articulated - that he can make more by investing his cash pile in Aer Lingus earnings than by leaving it in the bank - hardly adds up to an industrial strategy. Yet this is a real bid Mr O'Leary has put on the table. He's also already put his money where his mouth is by buying 16 per cent of the company in the stock market. He therefore has to be taken seriously.

Yet it is hard to see how he can succeed, even if he ups the price to a level which would be more tempting to investors. The Irish government was vitriolic in its opposition yesterday, with Ireland's Transport minister insisting that regulators had not spent the past 15 years encouraging the development of Ryanair so as to provide low-cost competition in airlines just to see the old monopoly re-established. Ireland was not interested in having a national champion, he insisted, but only in a fully competitive marketplace.

Ryanair calmly asserts that the deal would fall to European regulators to vet, not Dublin, and that with limited overlap on routes, the damage to competition would be marginal.

Hmm. The reality is that if this takeover were allowed, Mr O'Leary would have a stranglehold on Irish aviation as well as a passport into Heathrow. From the self-proclaimed champion of free competition in the skies, we have one of the most anti-competitive deals of the decade. As ever, Mr O'Leary cannot be faulted for his chutzpah, but it is hard to see how even old motormouth himself can make this one fly.

j.warner@independent.co.uk