Europe: European shares climb to four-month high, boosted by Bayer

[LONDON] European shares hit their highest in nearly four months on Friday, helped by gains in Bayer, after the German drugmaker sold assets that will pave the way for its acquisition of Monsanto.

The pan-European Stoxx 600 ended the session up 0.4 per cent, also underpinned by strength among steel-exposed materials stocks, with ArcelorMittal jumping 7.4 per cent.

The index also marked its fifth straight week of gains.

Money continued to flow into stocks as confidence in economic recovery outweighed political risk.

European equity funds posted solid weekly inflows overall, according to EPFR Global data. But Spanish funds suffered their second-largest outflow on record and redemptions from Italy climbed to levels last seen in the second quarter of 2015.

Germany's DAX hit a record high and closed with a 0.1 per cent gain. Britain's FTSE slipped 0.3 per cent after a record close on Thursday.

Spain's IBEX has lagged over the past two weeks amid concerns over the country's future following an independence referendum in the region of Catalonia declared illegal by authorities in Madrid.

Italy's FTSE has been hit by a sell-off in its banks on worries regulators will impose stricter provisioning rules for bad loans.

Bayer was one of the biggest boosts to the Stoxx 600, up 1.2 per cent after BASF agreed to buy parts of its seed and herbicide businesses for 5.9 billion euros in cash. BASF fell 0.5 per cent.

Bayer said it would use the proceeds of the sale to partly refinance the planned US$66 billion acquisition of Monsanto, which it hopes will close in early 2018.

"The recent divestments together with a potential radiology divestment could mean that Bayer only needs a capital raise of below US$10 billion which would be a positive surprise," said Baader Helvea analyst Markus Mayer in a note.

Analysts including Mayer said the price paid by BASF was higher than expected, but the terms of the deal were more favourable compared with market valuation multiples in the same sector.

Bayer is up 19 per cent so far this year, against a flat performance for BASF and a 13 per cent rise for the DAX.

Among top Stoxx 600 gainers were Provident Financial , up 12.5 per cent. The British subprime lender put in place a recovery plan for its home credit business, which it said was set to post a 2017 loss of up to £120 million (S$214.83 million).

A well-received earnings update boosted shares in Man Group, up 3.4 per cent. The British hedge fund said assets rose 7.9 per cent in the third quarter, boosted by market gains and net inflows to its funds.

The biggest decline was British engineering group GKN, which fell 9.8 per cent after a profit warning. The company said full-year profit would come in lower than expected because of disappointing trading in aerospace and two external claims that were expected to cost £40 million.

REUTERS