European Indexes Gain

Deal rumors in the auto sector and elsewhere provided momentum Friday morning

From Standard & Poor's European MarketScope

European indexes ended the week with comfortable gains. Wall Street was positive, but stronger-than-expected housing data was offset by a rise in crude prices. Oil jumped to over US$62/bbl after Iran captured UK Navy personnel.

UK: The FTSE 100 index closed higher helped by M&A activity and strong energy stocks. Banking was the other best performing sector. Commodity prices were firm, with copper extending its rally on the LME, helping mining stocks. In the energy sector, BP's (BP) (+2.74%) Russian unit, TNK-BP, said it would bid for a 9.44% stake in Russian state oil group Rosneft, with the stake on sale in an auction of assets in bankrupt Yukos.

On the rumor circuit, top-gainer Pearson (PSO) (+3.85%) benefited on talk of a break-up bid. Scottish & Southern Energy (+1.32%) fired up on talk that Germany's E.On (EON) may bid, if it lost out on Spain's Endesa.

In the banking sector, M&A news flow continued. Two private equity buyers are thought to be leading contenders to acquire Lloyds TSB's (LYG) (+1.50%) Registrars, which could be worth about £600 million, the FT wrote. Also, Barclays (BCS) (+3.04%) was in focus after the WSJ reported that certain executives within Citigroup (C) would want the US bank to look at ABN Amro (ABN).

In other news, Sainsbury's (-0.64%) pension trustees have signaled to the private equity consortium that it will have to tackle a hole in the pension scheme of up to £3 billion to succeed in an acquisition, according to the FT.

Germany: The Xetra-Dax index (+0.61%) closed higher for the fifth session in a row, buoyed by advances in DaimlerChrysler (DCX) (+6.22%) and Volkswagen (+6.23%). Firm trading on Wall Street also provided a boost to the German stock market. DCX added a hefty 33 points to the Dax after Magna International Inc. and a private equity firm were understood to be offering as much as US$4.7 billion for the firm's troubled Chrysler unit. VW sped ahead following a report in Manager Magazin that the Porsche (+1.97%) family has been buying preferred shares; this was denied by Porsche.

Away from autos and key for Adidas (+2.21%), Nike's (NKE) US sales developments and margins disappointed, despite the US sportswear giant reporting estimates-topping third quarter net profit. Oracle (ORCL) is suing SAP (SAP) (-1.72%) for 'corporate theft', claiming SAP used its customers' online access codes to steal copyrighted software.

Aareal (+2.3%) has sold a portfolio of sub and non-performing loans to a unit of Merrill Lynch. Key broker action included Morgan Stanley initiating coverage of the broader market-listed bank with overweight as it viewed the bank as a full fledged restructuring story. Lehman Brothers lifted its target on Continental (+2.27%).

France: The CAC 40 index (+0.65%) closed the week safely in the black. M&A talk remained high on the agenda at home and abroad. With Acciona and Enel circling above E.On's wilting bid for Spain's Endesa, French energy utilities outperformed: Suez (SZE) (+2.28%); EDF (+2.05%), GDF (+1.08%). In addition, Areva (+7.13%) reported good fiscal 2006 results and said it sees strong growth in sales and operating profit in 2007.

Auto stocks jumped on Chrysler (DCX) bid rumors: Renault (+1.66%); PSA (+2.94%). Michelin (+3.72%) climbed on a JP Morgan recommendation to buy the stock ahead of first quarter 2007 sales on April 24. EADS (+2.57%) has announced a number of agreements with Russia, including a risk-sharing partnership and a major jet order, according to the WSJ.

Carrefour (+0.4%) lost the lion's share of its earlier gains as a source said the Halley family has no intention of selling its 13% stake. AXA (AXA) (+1.13%) has signed a €1.15 billion deal for 50% of BMPS' life insurance and pension operations. Elsewhere, Total's (TOT) (+1.37%) CEO Christophe de Margerie has been placed under formal investigation by a French judge in connection with a probe over alleged bribes to Iran. The stock was firm all day, with oil trading around US$62. On the broker front: Merrill Lynch downgraded France Telecom (FTE) (-0.5%) to neutral from buy.