Analysts said a fiercely contested takeover battle could value P&O from 3.0 billion pounds ($5.4 billion) to 3.7 billion pounds and there were at least two other likely bidders waiting in the wings.
"This is the fourth-largest global container port operator and the only sizeable one that is institutionally owned, making it a unique set of assets," Dresdner Kleinwort Wasserstein analysts said. P&O shares rose as high as 429-3/4 pence in early trade, their highest since February 2000, and by 1233 GMT were up 34 percent at 416, valuing the firm at 3.1 billion pounds.
Dubai Ports World had approached 165-year-old P&O seeking talks on a possible take-over, a source familiar with the matter told Reuters on Sunday. P&O confirmed it was in contact with a suitor but said the process was at an early stage.
The world's number two and three ports groups - Denmark's Moeller-Maersk and Singapore government investment agency Temasek Holdings Pte. Ltd - were the most likely counter bidders, analysts said.
However, sources familiar with the situation said it was unlikely the world's biggest ports group, Hong Kong's Hutchison Whampoa Ports, would bid as it could face problems on competition grounds.
Dresdner said a price as high as 500p a share was possible. J.P. Morgan analysts said P&O could be worth up to 429 pence a share.
A Maersk spokesman declined to comment on whether it was looking at a counter bid. Temasek and Hutchison also declined to comment.
ATTRACTIVE ASSETS The global shipping industry has enjoyed a boom thanks to China's roaring economy, although recently freight rates for containers and dry bulk have declined from record highs due to slowing China demand and an anticipated glut of container ships.
Merrill Lynch estimates the overall container terminal market will grow 11.2 percent in 2005 and 10.6 percent in 2006.
"From a potential acquisition perspective, P&O is the purest play on global container terminals," it said.
P&O has long been considered a take-over target. Its stock hit a four-year high in May on speculation Temasek was building a stake in the group.
The company strengthened its board last week with new appointments and is close to winning UK government approval for a 1.5 billion pound ports and business centre project on the River Thames east of London.
Chairman John Parker, who joined P&O in May, is a veteran deal-maker who would drive a hard bargain for the company's assets, one source familiar with the situation said.
One banking source said Dubai Ports and Temasek were unlikely to face any regulatory obstacles if it bid for P&O but Maersk and Hutchison could face problems.
"We can quite possibly see a counteroffer. P&O would go to the highest bidder and to the one with the least regulatory obstacles," the source told Reuters.
P&O, whose full name is Peninsular & Oriental Steam Navigation Co, earns 70 percent of its profits from ports in Asia, the Americas and Europe.
P&O, whose brand-name still appears on cruise ship operations it no longer owns, also owns a ferries business operating between Britain and France which was scaled back in the past year as part of a strategic review.
The global ports industry has been consolidating. Maersk in August completed its $3 billion take-over of Dutch rival P&O Nedlloyd, and TUI, Europe's biggest tourism firm, expects to complete its $2 billion take-over of container shipper CP Ships by the end of the year.
Britain's PD Ports Plc said earlier this month it had received a take-over approach from an unnamed suitor. Media reports said an Australian bank was likely behind the move.