Telecom Italia surges on deal news, as European stocks inch up after weekend of protests over COVID restrictions

Telecom Italia surges on deal news, as European stocks inch up after weekend of protests over COVID restrictions

European stocks traded modestly higher on Monday, after a weekend of protests that turned violent at times over increasing COVID-19 restrictions across the continent. The telecom sector was in the lead, driven by Telecom Italia after a buyout offer from KKR & Co.

The Stoxx Europe 600 index
XX:SXXP
rose 0.2% to 487.28, following a modestly weekly fall that snapped a six-week winning streak. The German DAX
DX:DAX
was flat, the French CAC 40
FR:PX1
was up 0.2%, the FTSE 100
UK:UKX
rose 0.3%. The euro
EURUSD
dipped 0.14%.

A holiday-shortened U.S. trading week may keep trading volumes lower than normal. U.S. stock futures
ES00

YM00

NQ00
were higher across the board.

Europe’s pre-Christmas battle with rising COVID-19 cases intensified over the weekend. Protests erupted across the continent, following moves by Austria and other governments to restrict movement amid rising cases, with demonstrations turning violent in the Netherlands and Brussels, while Vienna saw thousands take to the streets against the lockdown. Italy, Switzerland, Croatia, and Northern Ireland also saw protests.

Under new rules, Austrians may only leave their homes for work, exercise and essential shopping, and by February, the government will make vaccinations compulsory.

“With coronavirus cases rising across several member states and partial lockdown restrictions having being reimposed in the Netherlands, Austria and Germany, this week’s survey data will be watched closely for signs of harmful economic side effects,” said Emily Nicol, economist at Daiwa Capital Markets, in a note to clients.

Eurozone confidence data are coming later on Monday, with flash November purchasing managers index data for Tuesday.

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Among stocks on the move, shares of Telecom Italia
IT:TIT
surged 20% after U.S. private-equity group KKR & Co.
KKR
offered €10 billion ($12 billion) to buy Italy’s biggest telecom group and take it private. The board called KKR’s bid “friendly,” and said it met Sunday to discuss the proposal, which would require approval by Telecom Italia’s directors and the government.

The 50.5 euro cents per share offer is roughly a 46% premium to Friday’s closing price. The offer price isn’t bad, considering shares have mostly traded below 40 euro cents since March 2020, said Thomas Coudry, analyst at Bryan Garnier in a note to clients.

“However, we believe Vivendi in particular is not ready to exit on this level, given an average entry price above EUR1. More broadly, we expect Vivendi to oppose the deal, to push for the replacement of Gubitosi instead and to try to weigh more on the company’s operations (extraordinary board meeting planned on 26 November) in order to restore the company’s performance without
having to spin off its most valuable assets,” said Coudry, who added that Vivendi, Telecom Italia’s biggest shareholder, may have limited influence on the outcome as it doesn’t control Telecom Italia’s board. Vivendi
FR:VIV
shares were up 2%.

Buyout hopes also lifted the entire telecom sector, with Spain’s Telefónica
ES:TEF

TEF
up 4% and BT Group
UK:BT
up nearly 3%.

Elsewhere in the sector, shares of Ericsson
SE:ERIC

ERIC
fell 4%, after the Swedish telecom equipment provider said it had reached an agreement to buy U.S. cloud company Vonage
VG
in $6.2 billion cash deal.

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Energy was another sector in the black, lifted by a 0.5% gain for U.S. and Brent crude prices, after Austria’s lockdown announcement sparked demand worries for the commodity and sent West Texas Intermediate crude to a seven-week low on Friday.

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