Market Report: Takeover speculation pushes O2 to fresh high

Credit Suisse First Boston was among those to argue yesterday that O2 will not be around as an independent entity for much longer. Despite Deutsche Telekom's statement to the Takeover Panel at the start of the week, in which it played down the possibility of a joint offer with KPN of the Netherlands, CSFB still believes the German group can acquire O2, as long as it gets board approval.

The Swiss broker warns that such a move by Deutsche Telekom is likely to referred to the Competition Commission. Deutsche already owns T-Mobile in the UK and if it were to swallow O2,its market share would soar to about 38 per cent. Should Deutsche throw its hat in the ring, CSFB argues there is a high possibility that Telefonica will also table an offer for O2, thereby sparking a bidding war. With no UK or German mobile sector presence, an bid from the Spanish group would be cleared quickly by regulators and would help Telefonica break out of the box it presently finds itself in.

According to CSFB, Telefonica was caught off guard when France Telecom bought Spanish mobile operator Amena. If Deutsche Telekom wins O2 Telefonica will find itself frozen out of the European mobile phone sector, leaving it, in CSFB's words, "with no footprint and no partner".

Meanwhile, the FTSE 100 ended a six session losing streak, finishing the session 43 points higher at 5,312. The optimism was prompted by solid start to trading on Wall Street. In London, the mining sector led the way higher as Antofagasta gained 36p to 1,426p, BHP Billiton added 12.5p to 819p, Rio Tinto rose 13p to 1,991p and Xstrata put on 12p to 1,290p. Oils also did well. BP put on 9p to 633p, Royal Dutch jumped 26p to 1,866p and BG Group was 2.75p firmer at 494p.

Elsewhere, Royal Bank of Scotland, up 9p to 1,643p, was talked of as a possible bidder for Commerzbank. The German bank has long been tipped as vulnerable to takeover and in recent weeks its shares have soared amid ever-stronger rumours of a bid. Neither RBS nor Commerzbank was willing to comment on the speculation. Analysts poured cold water on any talk that RBS was about to make a move on the German bank. They pointed out that just this week, in the wake of its purchase of a stake in Bank of China, RBS management ruled out making any acquisitions in Europe.

BAE Systems rose 7.5p to 322.5p on reports that the defence group is planning the sale of its German naval systems unit, Atlas Elektronik. BAE is said to have decided to open the books of the business to the likes of Thales of France, Italy's Finmeccanica and Germany's ThyssenKrupp. However, analysts suggested that a deal could take some time to finalise.

WPP gained 5.5p to 602.5p as Cazenove became the second heavyweight broker to upgrade its stance on the advertising giant in as many days. Cazenove raised its rating on WPP to "outperform" from "neutral" and tipped next week's interim results from the group to impress the City. It believes the advertising group will have benefited from the recent strength of the US dollar against Sterling. BOC improved 5p to 1,046p after Deutsche Bank upgraded the gases group to "buy" from "hold". The German broker expects BOC to achieve substantial growth in the years ahead, driven by its Asia operations.

Among the smaller companies, Pursuit Dynamics improved 4.5p to 205p on news that the technology developer had secured yet another customer in the food and beverage arena for its PDX system. Investec Securities applauded the coup and said: "We are increasingly certain Pursuit Dynamics will become a major food-manufacturing equipment player over the next decade as, one by one, major manufacturers start to adopt its technology."

Umbro jumped 13.25p to 146p amid talk of a possible bid for the sports equipment brand. Umbro shares came under selling pressure this week after it emerged that Sports World International, the vehicle of the retail entrepreneur Mike Ashley, cut its stake in the group to 3.9 per cent. Before this, Sports World, which owns the Sports Soccer chain and the London store Lillywhites, had been seen as a possible bidder for Umbro. Mr Ashley would certainly have had the firepower to buy the group. He is reported to be worth £500m.

Finally, United Clearing was steady at 132.5p despite the sale of 6,200 shares at 130p by Michael van Klink, its finance director.