May 14, 2018 / 7:42 AM / 10 days ago

M&A shakes up European shares while financials decline

LONDON (Reuters) - 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.

A broker looks at a graph on his computer screen on the dealing floor at ICAP in London, Britain January 3, 2018. REUTERS/Simon Dawson

The pan-European STOXX 600 index dipped 0.1 percent, while Italy's FTSE MIB .FTMIB edged up 0.3 percent 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 (EDP.LS) shares climbed 9.3 percent after China’s state-owned utility China Three Gorges offered $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 percent 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 U.S. renewables, and we expect management/minorities to claim a higher price,” said JP Morgan analysts.

The DAX (German stock index) logo is seen at the stock exchange in Frankfurt, Germany, March 23, 2018. REUTERS/Kai Pfaffenbach

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

Shares in IWG (IWG.L) shot up 22.8 percent 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 (ABNd.AS) 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 U.S. pharma on Friday after investors found U.S. 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 U.S. midterm elections.”

    The healthcare sector index .SXDP climbed 1 percent.

    Easing U.S.-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 (NOKIA.HE) shares down 1 percent, while Ericsson (ERICb.ST) fell 1.1 percent.

    Investors had hoped the Nordic telecom equipment companies would see stronger sales and margins after the U.S. 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 percent while the overall market’s earnings growth was flat in euro terms.

    The STOXX 600 oil & gas index .SXEP rose 0.5 percent, reversing earlier as OPEC reported that the global oil glut has been virtually eliminated, lifting crude prices.

    (Graphic: Benchmarks May 14, reut.rs/2KiYHrA)

    Reporting by Helen Reid and Danilo Masoni; Editing by Julien Ponthus and Hugh Lawson

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