Many gloomy professional investors in the City think shares are still expensive, even with the stock market down more than 20 per cent on last year. But many companies see bargains out there.

Santander of Spain yesterday agreed to buy Alliance & Leicester for 36 per cent more than its market value while Imperial Energy shares jumped 18 per cent after a bid approach.

On the other side of the Atlantic, Shell is buying a Canadian oil and gas company for a 36 per cent premium and Anheuser-Busch agreed to sell itself to InBev for $52 billion (£26 billion), a 35 per cent premium.

So who is right: the investors or the companies? The truth is, both may be. Alliance & Leicester is an extreme example of a company being worth dramatically more to a rival than as an independent entity.

This is a terrible time to be a smallish British mortgage lender. A&L's cost of borrowing is much higher than Santander's and the gap could widen as the credit crunch continues. Although it is funded until the middle of next year, it is not hard to imagine circumstances in which A&L could face a crisis of confidence.

That possibility was reflected in A&L's share price. It must have been at the forefront of directors' minds when they agreed to recommend Santander's offer.

Even at a 36 per cent premium, they must have feared Santander was getting a steal. What they feared more was the fate of Bradford & Bingley's directors, desperately scrabbling to prop up the company and their reputations. Both sides insisted it was an entirely commercial decision but there were audible sighs of relief from the FSA and the Treasury, which will now have one less small bank to worry about.

B&B's board would no doubt be delighted to get a similar offer and its shares jumped 12 per cent to 53p on the hope that it might. That still valued it at a mere £330 million, compared with the £1.3 billion Santander is offering for A&L.

B&B is more than half A&L's size but it is heavily exposed to buy-to-let mortgages, which make investors very nervous, and its arrears are three times as bad.

For customers of A&L and Abbey, which would be merged by Santander, the deal would be a mixed blessing. Where there is branch overlap, they may find their nearest one is axed. Many Abbey customers complained of glitches as their accounts were moved over to Santander's systems and the same may happen again with A&L.

But Santander should pass on some of its lower cost of funding to A&L customers and Abbey's corporate customers may benefit from A&L's greater expertise in the small business market.

For most A&L shareholders the 36 per cent premium Santander is offering will be little consolation. The shares are still down by half.

The shares closed almost 6 per cent above the value of the offer, reflecting (optimistic) hopes of a rival bid. Few other banks are in a position to do such a deal and the big British clearers might fear problems from the competition authorities.

There must be a temptation for A&L's retail shareholders to cash in now. But then Abbey investors who took Santander's paper have done more than well enough to offset the hassle of dealing with the Spanish withholding tax on their dividends.

As for the stock market, the City shrugged off yesterday's flurry of deals and Wall Street was hit by further jitters, following Friday's failure of IndyMac, one of America's largest independent mortgage lenders. It will take more than a few bids to shake investors' gloom.

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