European Stocks Advance for Third Week Amid Takeovers, Earnings

May 03, 2014 2:25 am ET

May 2 (Bloomberg) -- European stocks climbed for a third straight week amid takeover activity and company earnings that surpassed analysts’ estimates.

AstraZeneca Plc surged 18 percent as Pfizer Inc. sweetened its bid for the U.K.’s second-biggest drugmaker. Alstom SA jumped 10 percent as General Electric Co. made an offer for the French company’s energy business. Royal Bank of Scotland Group Plc climbed 9.4 percent after posting quarterly profit that exceeded projections.

The Stoxx Europe 600 Index added 1.3 percent to 337.76 in a shortened holiday week for its biggest increase in a month. The benchmark equity gauge rallied 1.1 percent in April, following a decline in March. The index closed within 0.4 percent of the six-year high it reached on April 4.

“M&A is helping the market,” Louis de Fels, a Paris-based fund manager at Raymond James Financial Inc., which oversees about $53 billion, said in an interview. “U.S. companies have a lot of cash, and they want to use it in Europe, so it is positive for the European market.”

National benchmark indexes rose in 16 of the 18 western- European markets this week. The U.K.’s FTSE 100 advanced 2.1 percent, while Germany’s DAX added 1.6 percent. France’s CAC 40 gained 0.3 percent. Most European markets were closed on May 1 for a holiday.

Mergers-and-acquisitions announcements coupled with better- than-expected earnings offset concern over the Ukraine crisis. The U.S. and the European Union imposed new asset freezes and travel bans on people close to Russian President Vladimir Putin and some of their companies. Ukraine sent armored vehicles and artillery to retake Slovyansk, a stronghold for pro-separatist forces, defying Putin’s demand to pull back troops.

Pfizer Bid

AstraZeneca surged 18 percent as Pfizer sweetened its bid to 63.1 billion pounds ($106 billion). AstraZeneca rejected the proposal on May 2, saying the offer fails to recognize the value of promising experimental medicines under development.

Alstom jumped 10 percent as GE made a 12.4 billion-euro ($17.2 billion) bid for the French company’s energy business. Siemens AG said this week it will make an offer for Alstom if it gets access to financial information.

Bayer added 4.4 percent. People familiar with the matter said Germany’s largest pharmaceutical company is in exclusive talks to acquire Merck & Co.’s consumer business and is prepared to pay about $14 billion for the division. Separately, people with the knowledge of the discussions said Bayer is considering options for Bayer Material Science after Evonik Industries AG showed potential interest several months ago.

RBS Profit

RBS rallied 9.4 percent after saying quarterly profit tripled and impairments fell. The bank’s net-interest margin -- the difference between its income from lending and its cost of funding -- will probably increase during the remainder of 2014, RBS predicted.

Telecity Group Plc surged 11 percent, the most since January 2011. The data-center operator said 2014 had a good start, with revenue growth accelerating to 9.4 percent in the first quarter.

Serco Group Plc sank 12 percent for the biggest drop in the Stoxx 600 this week. The operator of London’s Docklands Light Railway lowered its 2014 earnings forecast and increased its equity capital by 10 percent. Citigroup Inc., Canaccord Genuity Group Inc., Goldman Sachs Group Inc. and HSBC Holdings Plc cut their ratings on the U.K. company.

ABB Ltd. fell 7.1 percent. The world’s largest maker of power transformers posted quarterly profit and sales that missed estimates. A weak performance in the Power Systems unit and charges related to building offshore wind and solar plants dragged on earnings.

The Federal Reserve said it would continue to trim the pace of bond purchases as the economy gains momentum. The central bank cut its monthly asset purchases to $45 billion and said it will probably make further reductions.