Euro Falls; Spain, Portugal Austerity Steps

Arthi Gupta, Mayank Mehta and Sanjay Barot
13 May, 2010
New York City

European indices closed higher on strong earnings and on the easing of fears about the EU debt crisis. SAP agrees to acquire Sybase for $5.8 billion. Credit Agricole SA first-quarter profit rises. Telefonica first quarter profit increases 2%. Cap Gemini SA proposes share repurchase program.

[R]7:00 PM Frankfurt, Paris; 1:00 PM New York – European indices closed higher on strong earnings and on the easing of fears about the EU debt crisis. SAP agrees to acquire Sybase for $5.8 billion. Credit Agricole SA first-quarter profit rises. Telefonica first quarter profit increases 2%. Cap Gemini SA proposes share repurchase program.[/R]

European shares rose following positive earnings trend and Spain and Portugal agree to implement tough austerity measures.

Spain''s Prime Minister Jose Luis Rodriguez Zapatero said Madrid would slash civil service pay by 5% this year, freeze it in 2011 and cut 13,000 public sector jobs this year in a drive to meet European Union deficit target.

EU Economic and Monetary Affairs Commissioner Olli Rehn said the Spanish cuts “seem to go in the right direction,” as the nation renewed a pledge to meet the deficit limit in 2013. The steps include a €6 billion reduction in public investment, a pension freeze and the end of a €2,500 subsidy for new parents.

Prime Minister Jose Socrates and opposition leader Pedro Passos Coelho drew up steps to slash the budget deficit, including 5% pay cuts for senior public sector staff and politicians, and increases of VAT sales tax, income tax and profits tax ranging from 1% to 2.5%.

The cabinet approved the program later. The government said it would cut the deficit to 7.3% of GDP this year and 4.6% in 2011.

The euro slipped close to a 14-month low versus the dollar. National benchmark indexes decline in 7 of the 10 western European markets. Spain’s IBEX 35 fell 1.7% and Greece’s ASE Index declined 1.9%.

SAP AG, the world''s largest maker of business management software said that it has agreed to buy enterprise and mobile software maker Sybase, Inc. in a deal valued at about $5.8 billion.

Under the deal, Germany-based SAP''s U.S. subsidiary will make an all cash tender offer for all of the outstanding shares of Sybase at $65.00 per share, a 56% premium to Sybase''s closing stock price on Tuesday and a 44% premium to its average stock price over the past three months

SAP said the deal would be funded from the company''s cash on hand and a €2.75 billion loan facility arranged and underwritten by Barclays Capital and Deutsche Bank.

Spanish telecommunications company Telefonica SA reported a 2% increase in net income for the first quarter, driven by higher revenues, particularly from Latin America and Europe. Looking ahead, the company reaffirmed its guidance for the full year and confirmed its dividend targets through 2012.

In London FTSE 100 Index closed higher 26.53 or 0.49% to 5,409.98, in Paris CAC 40 Index decreased 4.45 or 0.12% to close at 3,729.42, in Frankfurt DAX index higher 52.42 or 0.85% to close at 6,235.91. Markets of Switzerland were closed today.

Gainers & Losers

Cap Gemini SA rose 0.5% to €39.56 after the computer-services provider announced that it will launch a share repurchase program. The company will acquire up to 8.7% of its share capital or 13.4 million shares, at a maximum price of €51 per share.

CNP Assurances SA gained 3.0% to €64.22. The personal insurance provider said first quarter premium income fell 2% to €9.4 billion from €9.6 billion a year ago. Net profit for the quarter was €280 million.

Credit Agricole SA closed unchanged at €10.66 after the banking group said first quarter net banking income rose 18% to €4.8 billion from €4.06 billion a year ago. Net profit for the quarter rose 133% to €470 million compared to net profit of €202 million a year ago.

L''Oreal SA rose 0.7% to €77.25 after the cosmetics maker raised its recommendation to “equal weight” from “underweight” at Morgan Stanley.

Renault SA, the carmaker fell 0.9% to €33.33.

Telefonica S.A., the telecommunications company said first quarter sales rose 1.5% to €13.9 billion from €13.7 billion a year ago. Net profit for the quarter rose 2.5% to €1.66 billion compared to net profit of €1.62 billion a year ago.

Vallourec SA closed unchanged at €151.75 after the producer of seamless steel tube products said first quarter sales fell 33% to €877.4 million from €1.3 billion a year ago. Net profit for the quarter fell 67.5% to €60.8 million compared to net profit of €187.2 million a year ago.