Europe: M&A shakes up shares while financials decline

[LONDON] Weak financial stocks weighed on European shares on Monday after a strong run of weekly gains, while dealmaking livened up trading with Portugal's EDP and Britain's IWG both jumping on takeover offers.

The pan-European Stoxx 600 index dipped 0.1 per cent, while Italy's FTSE MIB edged up 0.3 per cent after a volatile session as investors kept close tabs on talks between the anti-establishment 5-Star Movement and the far-right League to form a coalition government.

M&A dominated trading, continuing a trend which has set 2018 up to be one of the strongest years yet for dealmaking volumes.

EDP shares climbed 9.3 per cent after China's state-owned utility China Three Gorges offered US$10.8 billion to take control of the Portuguese power firm.

The stock ended above the bid price, which offered a premium of just under 5 per cent to its closing price on Friday.

"We believe the price offered is too low for CTG to achieve full control of a vehicle that provides, among other things, a strategic footprint into US renewables, and we expect management/minorities to claim a higher price," said JP Morgan analysts.

Analysts at Goldman Sachs also noted potential regulatory obstacles as the deal will have to be cleared by many countries'regulators including the US Committee on Foreign Investment.

Shares in IWG shot up 22.8 per cent to the top of the Stoxx after the British workspace provider said it had been approached for a takeover by three rival suitors.

In results-driven moves, Dutch bank ABN Amro fell 6 percent, dragging the financials sector down. It reported a drop in first-quarter net profit due to ongoing problems in the oil sector, leading to impairments on loans to shipping and offshore services clients.

"Loan losses were more than three times consensus forecast at 30 basis points in the quarter... The large increase in loan losses is likely to raise questions about the asset quality outlook," UBS analysts said.

Healthcare stocks were the best-performing, following a rally in US pharma on Friday after investors found US President Trump's speech on drug prices less harmful than expected for pharma companies' business models.

"We see limited impact from Trump's blueprint on drug pricing," said Credit Suisse analysts. "While investors will feel a sense of relief coming out of Friday, we believe the broader overhang around drug pricing reform will persist as we approach the 2018 US midterm elections."

The healthcare sector index climbed 1 per cent.

Easing US-China trade tensions failed to boost European markets, and Trump's U-turn on Chinese phone company ZTE, the world's 4th largest telecom equipment vendor, actually sent Nokia shares down 1 per cent, while Ericsson fell 1.1 per cent.

Investors had hoped the Nordic telecom equipment companies would see stronger sales and margins after the US Commerce Department banned American supplies to ZTE and the firm suspended operations.

With three-quarters of the MSCI Europe index having reported earnings, energy stocks were leading the market by far, with year-on-year earnings growth of 10.5 per cent while the overall market's earnings growth was flat in euro terms.

The Stoxx 600 oil & gas index rose 0.5 pe rcent, reversing earlier as Opec reported that the global oil glut has been virtually eliminated, lifting crude prices.

REUTERS