Shares in digital map maker Tele Atlas rallied on Thursday on hopes EU regulators will approve its 2.9 billion euro ($4.48 billion) takeover by TomTom, Europe's largest maker of car navigation devices.
Tele Atlas shares rose nearly 9 percent to 23.97 euros at 1315 GMT, although the stock remains about 20 percent below the 30 euros per share offered by TomTom.
Competition officials at the European Commission had been close to approving the deal but TomTom resisted remedies deemed necessary by Brussels, a source close to the deal said earlier this month.
So instead the Commission issued a formal statement of objections, complicating the task of winning approval.
The Commission, which rarely rejects deals completely, must complete its in-depth investigation and decision by May 5.
The deal has won approval in the United States, and for six years Brussels and the U.S. have been in sync on merger decisions.
But first, the Commission will decide by March 28 whether Nokiva's $8.1 billion deal to buy U.S. firm Navteq , the other major digital map maker, also deserves an in-depth, 90 working-day investigation.
Nokia has offered no remedies for competitive problems in that deal, which has some of the same complex issues as TomTom.
Some argued Tele Atlas shares, trading at 28.50 euros as late as the end of February, have fallen so far that their downside is limited, even if the Commission rejected the deal.
"Our stand-alone model suggests a target for Tele Atlas of 24 euros per share, although we should apply a discount because of the 30 percent interest held by TomTom," SNS Securities analyst Martijn den Drijver said in a note.
"The upside ... is significant and rather likely," he said.
Another analyst, who asked not to be identified, was more cautious, saying he expected the shares to drop to around 17 euros if the deal fell through.
TomTom says it is committed to winning approval, reducing its dependence on hardware sales and securing itself a place at the heart of the fast-growing navigation industry.
TomTom has told Tele Atlas customers, who are potential or actual rivals, their trade secrets would be safe. It said Tele Atlas customers will have access to the same maps at the same time as TomTom, and the companies will operate at arm's length.
But an industry source has expressed unease at the deal and pointed to two issues raised by the Commission.
Customers of both Tele Atlas and Navteq ask map makers to incorporate their new ideas and such new features give the originators a short-term advantage before becoming widely available, the source said.
The source also said even if Tele Atlas were run as a separate division of the company it would need approval from TomTom for major new investments to carry out ideas requested by customers.
No matter the promises made, ideas would no longer be secret from a major rival, the source said.
Second, TomTom would be tempted to offer less rich electronic maps to rivals and could also raise prices.
Competitors are concerned that promises to offer the maps on fair, reasonable and non-discriminatory terms would mean little.
But analyst den Drijver says Tele Atlas has retained old customers and signed new ones, a sign that they do not share such concerns.