European Markets Fall; Estonia Joins Euro-Zone

Arthi Gupta, Mayank Mehta and Sanjay Barot
08 Jun, 2010
New York City

European markets decline amidst concerns of a sovereign debt crisis. EU Finance Ministers approve Estonia''s entry into the euro-zone. Switzerland-based ABB agrees to acquire UK-based Chloride Group for $1.25 billion.

[R]4:10 PM Frankfurt - European markets decline amidst concerns of a sovereign debt crisis. EU Finance Ministers approve Estonia''s entry into the euro-zone. Switzerland-based ABB agrees to acquire UK-based Chloride Group for $1.25 billion.[/R]

German industrial production grows more than expected in April. In France, the industrial sentiment indicator fell to 101 in May.

In London FTSE 100 Index traded lower 24.80 or 0.49% to 5,044.26, in Paris CAC 40 Index decreased 26.06 or 0.76% to close at 3,387.66, in Frankfurt DAX Index traded lower 43.10 or 0.73% to close at 5,861.85. In Zurich trading SMI Index decreased 29.88 or 0.47% to close at 6,261.16.

Comments from U.S. Federal Reserve Chairman Ben Bernanke on the state of the U.S. economy eased concerns about the sustainability of the global economic recovery.

The U.S. recovery is likely to proceed at a moderate pace, Bernanke said on Monday but cautioned that it is unlikely to bring down the unemployment rate quickly. ""My best guess is we''ll have a continued recovery, but it won''t feel terrific,"" he was quoted as saying in an interview with ABC News journalist Sam Donaldson at the Woodrow Wilson Center.

Encouragingly, consumers and businesses are starting to take the baton to drive the recovery forward as government stimulus fades, Bernanke said. He also discussed the sovereign debt crisis in Greece and expressed confidence that the European authorities could deal with the issue.

German exports decreased 5.9% in April, reversing the 10.8% growth in the previous month, according to a report by the Federal Statistical Office. This was the first decline in three months. Industrial production in the country grew 0.9% in April from the previous month, higher than the expected 0.7%, according to the Federal Ministry of Economics and Technology. However, the growth was considerably smaller than the revised 4.3% growth seen in March.

In France, business confidence in the country''s industrial sector decreased slightly in May from April, the Bank of France said. The industrial sentiment indicator fell to 101 from 102.

In Switzerland, seasonally adjusted jobless rate in May remained unchanged from the previous month at 4%, according to a report from the State Secretariat for Economic Affairs.

European Union finance ministers today approved Estonia’s entry to the euro area in January 2011 as the currency bloc''s seventeenth member.

A one-time satellite of the Soviet Union and a country of 1.3 million people, Estonia has met all conditions to adopt euro as their currency from next year, EU Economic and Financial Affairs ministers said at their meeting held in Luxembourg. Moreover, the country has pledged to take tough fiscal policies together with structural reform.

Estonia''s general government deficit fell to 1.7% of GDP in 2009 and the gross debt level stood at 7.2% of GDP. The deficit in 2009 remained within the 3% set out in the Maastricht Treaty.

On May 12, the European Commission said in its convergence report that Estonia meets the requirements to join euro-zone. On the same day, the European Central Bank voiced concern over the country''s inflation saying that the recent low inflation is due to temporary factors. The bank argued that Estonia faces the challenge of maintaining low inflation as it has limited room to maneuver for monetary policy.

The euro-zone finance ministers agreed to establish a €440 billion safety net for the region''s members in trouble.

Switzerland''s power and automation technology company ABB Ltd. said today that its £860 million or $1.25 billion takeover offer for UK-based power solutions provider Chloride Group Plc was agreed by Chloride''s Board. The all-cash offer of 325 pence per share will be implemented by way of a Scheme of Arrangement expected to be effective during the fourth quarter.

The acquisition is, however, subject to approval by Chloride shareholders, the UK High Court and certain regulatory authorities.

ABB''s offer price of 325 pence per Chloride share represents a premium of about 55.5%, based on the closing price of 209 pence per Chloride share on April 23, 2010, the last business day before Chloride entered into an offer period.

Chloride pointed out that the acquisition values its entire issued and to be issued share capital at about £864 million.

ABB said the purchase of London-based Chloride will help it meet the growing demand for uninterruptible power supplies or UPS. Chloride specializes in providing UPS systems, which are used in applications where power quality and security are critically important, including that of ABB''s traditional utilities and industrial customer base.

In the transaction, ABB is being advised by Credit Suisse. Citi and Investec are acting as joint financial advisers and corporate brokers to Chloride.

On the London Stock Exchange, Chloride Group Plc ((CHLD.L)) is currently trading at 342.00 pence, up 53.40 pence or 18.50%, on a volume of 1.2 million shares. Following the news, shares of Chloride rose over 18% in morning trade on the London Stock Exchange.

ABB Ltd. ((ABB)) closed Monday''s regular trading session at $16.27, down $0.18 or 1.09%, on a volume of 3.05 million shares.

Gainers & Losers

Areva SA rose 0.4% to €353.00 after the nuclear group today finalized the sale of its Transmission and Distribution activities to Alstom and Schneider Electric.

Bilfinger Berger AG, the construction and services group increased 0.09% to €45.20.

Compagnie de Saint-Gobain SA rose 0.4% to €30.80 after the supplier of building materials has announced that its subsidiary Avancis will be building a new plant to produce photovoltaic modules to cover the roofs of residential, industrial and commercial buildings as well as solar plants.

Deutsche Bank AG fell 0.2% to €46.30 after the global investment bank was upgraded to “buy” from “hold” at Societe Generale SA.

Deutsche Lufthansa AG, the aviation company fell 1.1% to €10.60.

GDF Suez SA fell 0.02% to €24.56. The natural gas and electricity supplier and E.ON signed a memorandum of understanding focusing on the current and developing market for new nuclear energy in Italy.

GiFi SA, the distributor of low-price non-grocery goods rose 7.6% to €53.48.

Groupe Gorge SA, the maker of submarine robotics traded unchanged at €6.39.

Klepierre SA rose 1.5% to €21.99 after the real estate company was upgraded to “buy” from “neutral” at UBS AG.

Kuka AG rose 3.1% to €10.90 after the mechanical and plants engineering automation group and Aerospace Center (DLR) have signed an agreement that aims to further expand their research and development cooperation. The joint program will focus on new technologies that meet the increasing demand in the field of robotics surgery.

Munich Re, the reinsurance company fell 1.5% to €99.26.

Schneider Electric SA, the engineering company rose 0.8% to €84.53.

Total SA rose 0.03% to €37.97 after the company announced today that its subsidiary Total Gas & Power USA has acquired a 25.4% interest in U.S. startup AE Polysilicon Corporation.

Veolia Environnement fell 0.9% to €24.16. The provider of environmental management services was upgraded to “buy” from “neutral” at BofA Merrill Lynch Global Research.