Cable & Wireless (C&W) was today given the green light from the Office of Fair Trading (OFT) to proceed with the acquisition of its smaller rival Energis.

Fears had grown that the £710 million deal would be referred to the Competition Commission. It was widely felt such a move would end the possibility of a tie-up between the two telecoms companies.

Cable & Wireless shares gained 3.5 per cent to 110.75p in early trade. Click here to track the stock.

The OFT had been expected to make a decision on the deal this week, but C&W warned that the process could be protracted.

The OFT automatically looks into any deal that would create a market share of 25 per cent or combined turnover of £70 million.

C&W and Energis overlap in the supply of various telecoms services in the UK to business customers. However, Vincent Smith, Director of Competition Enforcement at the OFT, said the body did not believe that Cable & Wireless could impose higher post-merger prices on customers, because of the number of credible competitors."

Francesco Caio, C&W's chief executive, said: "I am delighted that we can now move towards finalising our transaction with Energis."

Shares in C&W plunged earlier this month after a shock profit warning forced analysts to trim forecasts.

The acquisition of Energis will help Energis compete with BT. The future of Energis as a standalone business has been uncertain since its banks rescued it from administration in 2002.

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