BBVA deal dominates European action

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Positive earnings, restructuring plans and bid activity helped European equities hit a six-year high on Thursday, although the FTSE Eurofirst 300 managed a rise of just 0.1 per cent over the week to 1,544.07.

Europe’s dividend payout ratio has sunk to its lowest for 15 years at 38 per cent of earnings. However, Darren Brooks, strategist at Citigroup, said European companies could raise dividends well above earnings growth over the next few years, adding €44bn to capital distribution and significantly improving the valuation attraction of the market.

M&A news on Friday was dominated by Banco Bilbao Vizcaya Argentaria as Spain’s second-largest bank announced its largest foreign takeover with a $9.6bn deal to buy Compass Bancshares of the US. The deal will be funded by $4.6bn in cash and a rights issue of 196m shares. BBVA fell 2.4 per cent to €19.49 amid concerns it had overpaid.

But it was the brewing sector that provided the most interesting bid speculation of the week with rumours of a merger between InBev of Belgium and US rival Anheuser-Busch. Andrew Holland of Dresdner Kleinwort said a deal would materially boost profit margins and a more efficient capital structure could deliver a capital return of €6bn to €12bn. InBev firmed 1.1 per cent at €51.65 this week.

DaimlerChrysler gained 9.2 per cent to €54.12 this week after announcing restructuring plans for Chrysler which also raised expectations that the loss-making US business could be sold. Friday brought rumours that GM could bid for Chrysler.

Michelin jumped 16.2 per cent this week to €82.6 after the world’s largest tyre-maker promised improvements in its cost structure with savings of between €1.5bn and €1.7bn by 2010.

Michelin’s raw materials and energy costs soared by €0.7bn last year but the company is now targeting a rise in operating margins to 10 per cent by 2010. A host of brokers upgraded the stock, including UBS, which raised its price target from €80 to €100.

Property stocks were boosted by strong results from Gecina, up 5.7 per cent to €142.40 after the French group more than doubled full-year profits. Domestic rival Unibail rose 7.8 per cent to €233.00 over the week after an upgrade by Kempen from “neutral” to “add”.

Luxury goods groups also made gains after strong results from both LVMH and Christian Dior. LVMH, the maker of Louis Vuitton fashion accessories and Moet champagne, added 5.4 per cent at €87.25 while Dior rose 6.2 per cent to €91.15 over the week.

Banks provided the week’s biggest negative influence. French lenders were hit by pressures on their domestic retail operations. Societe Generale fell 4 per cent to €135.00 while BNP Paribas lost 4.7 per cent at €83.15 and Credit Agricole shed 3.6 per cent to €32.17.

Credit Suisse rose 5.6 per cent to SFr93.5 after reporting record fourth-quarter profits and replacing Oswald Grübel as chief executive with Brady Dougan.

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