Shares in Alliance & Leicester soared by 52.8% yesterday as investors hoped for a rival bid to trump an agreed £1.3bn takeover of the company by Abbey's Spanish owner Santander.

Alliance & Leicester shares shot up 115.75p to 335p, well ahead of a bid worth a total of 317p a share after Santander, which has been linked to a bid for Alliance & Leicester for more than two years, offered one of its shares for every three Alliance & Leicester shares plus a cash dividend of 18p.

The bid, which is the only one received by Alliance & Leicester, is at a 44.6% premium to the lender's closing share price on Friday but barely a quarter of its price a year ago.

Alliance & Leicester chief executive David Bennett commented: "The board has to look forward and we have to provide certainty in uncertain markets."

He added: "These are turbulent times and when we look forward, it's not clear when that turbulence ends or reduces."

He highlighted funding costs as one particular factor that could hit the company on a six-to-18-month view.

Bennett also pointed to potential benefits to customers by combining Alliance & Leicester's strengths in its online service with Abbey products, particularly in mortgages.

The deal was well received by Santander shareholders with its shares up one cent at 11.24, despite the announcement it is to issue 140 million new shares.

However, the takeover agreement left some Alliance & Leicester shareholders crying out for a rival offer.

David Cumming, head of UK equities at Standard Life Investments, which has a 2.35% stake in Alliance & Leicester, said: "This is a gorgeous deal for Banco Santander. They are acquiring Alliance & Leicester on giveaway terms. I would be amazed if no-one else counters with a higher offer in the next few months."

Among potential rival bidders is Lloyds TSB, which has emerged relatively unscathed from the credit crunch.

Also in the frame is Clive Cowdery's Resolution, which was rebuffed in its attempts to lead a refinancing of Bradford & Bingley earlier this month that would have given it a vehicle to lead a consolidation of the British banking sector.

However, pressure on capital at UK banks is thought by many analysts as likely to deter a bid. Shaun Miskell, analyst at financial fund manager Blue Planet, said: "I can't see it happening. I think the last thing Lloyds' shareholders would want at the moment is to enter a bidding war."

Alliance & Leicester, which employs more than 7000 people, has long been regarded as a possible takeover target, with French bank Credit Agricole, National Australia Bank and even Abbey National, while it was independent, all thought to have looked at it.

Santander, Europe's biggest bank, plans to merge Alliance & Leicester with the Abbey business it acquired four years ago in a £9.5bn deal. Both are former building societies and their merger, which is planned for completion in October, would create a business with 959 UK branches and a share of more than 8% of the savings and personal loans market. It would also have 13% or so of the mortgage market.

Santander's plans, however, rest more on exploiting efficiency gains than growing business in what is regarded as a mature market. It is aiming to whittle down the combined group's assets by up to £30bn over the next two years and expects to make annual savings of more than £180m, equivalent to around 23% of Alliance & Leicester's current cost base, by the end of 2011 through combining back-office functions.

Miskell of Blue Planet estimates that Santander could slice anything from 50 to 100 basis points from the cost of funding for that portion of Alliance & Leicester's loan book that is not covered by deposits. Currently, around half of its £40bn loan book is funded from the money markets.

He said: "From the cost synergies and the funding synergies, it already looks like a pretty good deal. They have already shown they can turn a UK business around."

Santander will also pump around £1bn into Alliance & Leicester to shore up the group's finances and cover future writedowns on its mortgage book.

Alliance & Leicester's profits fell 30% last year and are forecast to more than halve this year to around £195m.

Andy Kerr, deputy general secretary of the Communications Workers' Union, said: "Staff at A&L deserve to have answers about their future and we urge the company to be up front about their intentions."

Linda Rolf, general secretary of Abbey staff union Advance, said: "I am sure there will be job losses and we will be doing as much as possible to keep our members' job security."

Bennett said his future under Santander ownership had not been discussed.

One immediate post that could be redundant is that of incoming chairman Alan Gillespie who was expected to join from Royal Bank of Scotland's Ulster Bank in September.

Alliance & Leicester said he has not yet signed a contract and that it is in negotiations with him.

It will need to gain the support of private investors, who make up 38.5% of the shareholder register, and who would end up with euro-denominated shares if the merger goes ahead.

It has not yet been decided whether they will benefit from a free dealing service so they can sell the new shares as was provided when Santander bought Abbey.

Much of the banking sector rose yesterday on hopes that corporate action will underpin valuations. The biggest beneficiary was ailing buy-to-let lender Bradford & Bingley, up 28% at one point before closing up 11.6% at 53p, only 2p below the price it is offering shares under a £400m fundraising.