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European Indexes Rally on M&A News

Major European equity indexes finished with substantial gains Monday, sparked by a number of M&A headlines. Chief among them: A bid by Spain's Telefonica (TEF) for UK mobile communications outfit O2, in a deal worth some £17.7 billion. Strength in U.S. equities also lifted sentiment.

Germany: The Xetra-Dax closed Monday's session higher. Stock in Frankfurt were led higher by Altana (+4.02%), which was the top gainer after considering the sale of its pharma business. Broker Kepler expects Deutsche Telekom (DT

; +0.07%) to make a counter offer for O2. Linde (+2.35%) posted nine months sales up 7.8% at €6.83 billion and net income 22.4% higher at €311 million, a touch better than expected. BMW (-0.90%) is sticking to its 2005 earnings forecast, despite a report on Dow Jones Newswires saying otherwise. Metro's (+0.24%) DIY retail unit will reportedly make its stock market debut on Nov. 18. Meanwhile, PlatowBrief speculates that the retail group will lower its fiscal year targets on Wednesday when it presents its third quarter figures as business in Germany remains challenging.

Lanxess (+5.8%) will unveil its strategy for its fine chemicals division at an industry conference next week as it prepares to split the business. Meanwhile, CEO Axel Heitmann told FAZ that the chemicals group is on track to meet its targets for the year.

UK: The FTSE 100 index ended Monday's session over 100 points higher, boosted by a wave of M&A activity. Shares in O2 rallied nearly 25% to trade above the offering price of £2.0 per share, after Telefonica launched its bid for the mobile phone operator. Cruise and ferries group P&O (+30.2%) soared, on expectations of a bidding war, after confirming it has received an approach, following reports that Dubai's DP World was mulling a bid. Denmark's Moeller-Maersk and Hong Kong's Hutchison are seen as likely counterbidders. Pilkington (+20.91%) rocketed after confirming it has been approached by Japan's Nippon Sheet Glass. However, talks are at a preliminary stage, with no guarantee that an offer will be launched.

Among smaller stocks, Peacock (+2.2%) says it has agreed to a management buyout at £3.405 per share, valuing the group at £404 million. BSkyB (+0.2%) is to launch Sky Mobile TV with Vodafone (VOD

; +3.3%). Trafficmaster (+7.76%) has signed an agreement to provide its Smartnav satellite system to all Peugeot 407 Saloon and SW estate models.

France: The CAC 40 index (+2.54%) rallied smartly. With the Telefonica bid for O2, Bouygues (+5.7%) and Vivendi (V

; +3.6%) benefited as they also own attractive telecom assets. Euronext (+2.75%) gained after it announced over the weekend that it has backed away from a cash bid for the London Stock Exchange following opposition from its shareholders. St. Gobain (+1.6%) despite dismissing speculation it could be eyeing Pilkington.

Air France-KLM (+2.19%) took off after CEO Jean-Cyril Spinetta on Friday said the flag carrier could form a North Atlantic joint venture with Delta Air Lines. Danone (DA) (+2.78%) jumped after increasing its stake in Shanghai's Bright Dairy Foods to 11.55% in a deal worth US$8.9 million. Meanwhile, Havas (+1.5%) rallied after winning Danone's advertising budget, worth around €300 million.

Elsewhere in Europe, Switzerland's SMI (+2.39%) closed firmly above the 7,000 mark. ABB (ABB) (+3.68%) led the way after Goldman Sachs upgraded the stock to in-line from underperform while a flurry of other brokers increased their price targets. Spain's IBEX 35 index (+1.49%) ended on a high note on Monday, after it extended gains in late session. The Telefonica-O2 hookup was the day's main focus. Prepared by Zaida Espana, Michael Sanderson, Mariella Mongio, Alexander Wisch, Holly Cook, Emma Stevenson, Pawan Girglani, and Rocio Opazo-Aniotz (Standard & Poor's); Alex Halperin (BusinessWeek Online)

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