Takeover activity propelled European stocks to a four-and-a-half-year high yesterday, with German drugs group Schering and London Stock Exchange leading the way.
Mobile phone giant Vodafone rose on hopes of a bidding battle for its Japanese unit, while Portugal's Banco BPI leapt after its rival Millennium BCP launched a takeover offer.
"The merger activity in the market is positive for stocks. Companies have a lot of cash on their balance sheets," said Thomas Muehlberger, fund manager at Bayern Invest in Munich.
"In the short term, the next few weeks, the rally will continue. There's a lot of liquidity and interesting news in the market. Everybody wants to have stocks right now." The FTSEurofirst 300 index of leading European shares gained 0.7 per cent to 1,363.67, its highest level since August 2001.
Upbeat earnings results at European companies in recent quarters have helped to drive an upsurge in takeover activity, as firms try to expand their businesses with their extra piles of cash. "Equity markets were quite rightly nervous when they saw bond yields spiralling up last week and people took some risk off the table," said Mark Tinker, head of strategy at broker Execution.
"Then you get a reminder of the intrinsic value in equities from all this takeover activity... Every sector has potential bid candidates and every sector has got potential bidders in it." Schering rallied 27 per cent in hefty volume to €84.59 after its German rival Merck KGaA confirmed plans to offer €77 a share. Merck fell 4.5 per cent. Shares in the LSE leapt 31 per cent after it rejected a £2.4 billion bid from US peer Nasdaq, announced after Friday's close. Investors now believe that the US exchange may have to raise its bid or that a counter offer may emerge.
The LSE news lifted exchanges across Europe, with German bourse operator Deutsche Boerse gaining 7.5 per cent while Euronext added 12 per cent. Nordic bourse operator OMX AB rose 4.4 per cent and Hellenic Exchanges added 5.1 per cent.
Vodafone added four per cent after a media report that private equity firms were preparing to challenge Softbank Corp.'s offer for its struggling Japanese unit.