Italy's 4% Plunge Drags Europe Lower; Nestle Buys Chinese Candy Maker

Arthi Gupta
11 Jul, 2011
New York City

European Union regulators to hold an emergency meeting today as debt fear contagion spreads to Italy. The index in Germany fell 2.3%, in Paris dropped 2.7% and in Italy plunged 4%. Nestle agreed to buy stake in China-based Hsu Fu Chi for $1.72 billion.

[R]4:30 PM Frankfurt – European Union regulators to hold an emergency meeting today as debt fear contagion spreads to Italy. The index in Germany fell 2.3%, in Paris dropped 2.7% and in Italy plunged 4%. Nestle agreed to buy stake in China-based Hsu Fu Chi for $1.72 billion. Lonza acquired Arch Chemicals in a deal valued at about $1.4 billion.[/R]

European markets across the region turned lower as sovereign debt fears spread to Italy. The focus on Italian bonds intensified after Italian market and banks declined sharply on Friday and extended losses today by 4%.

The latest sell off on Friday was driven by the ongoing corruption inquiry that tied Italian finance minister Giuilio Tremonti to his aide who was forced out last month. Tremonti has been viewed as a steady hand by investors.

Tensions have also been on the rise between Tremonti and Prime Minister Silvio Berlusconi.

Over the weekend European Union regulators decided to meet in Brussels today before the scheduled meeting for the second Greek bailout to discuss the Italian situation.

The 10-year Italian bond yield increased 14 basis points to 5.25% on Friday and extended gains further today. The yield of 10-year bond increased to 5.39% and widened the premium to German bunds to 260 basis points.

Consob, Italy's financial market regulator has ordered short sellers to reveal their positions when they reach 0.2% of a company's capital followed by a new disclosure for every additional 0.1% increase.

French industrial production increased 2% on a monthly basis in May, offsetting the 0.5% fall in April, data from the statistics office Insee showed.

In Paris CAC-40 Index declined 106.33 or 2.7% to 3,808.20 and in Frankfurt DAX Index edged lower 172.57 or 2.3% to 7,230.7.

The benchmark index in Italy, MIB index dropped 755 or 4% to 18,295. The index in Spain fell 2.7%.

Most Asian markets slumped after China's annual inflation soared to 6.4%, the fastest growth in three years fueled by surging food prices. Separately, Chinese trade surplus rose to $22.3 billion in June, from $13.1 billion in May.

Nestle Buys Stake in Hsu Fu Chi

Nestlé SA, the food and nutrition company agreed to buy a 60% stake in Chinese snack and candy maker Hsu Fu Chi International Ltd. for about S$2.1 billion or $1.72 billion to expand in one of the world's biggest consumer markets.

Nestle offered S$4.35 in cash for each share of Singapore-listed Hsu Fu Chi, an 8.8% premium over the stock’s closing price on Friday.

The controlling Hsu family will own 40% of Hsu Fu Chi after the acquisition and the company will be delisted from the Singapore exchange.’

Lonza Acquires Arch Chemicals

Lonza Group AG, the Swiss chemicals and biotechnology company said it agreed to acquire U.S.-based biocides firm Arch Chemicals Inc. for $47.20 per share in cash, valuing the company at about $1.4 billion or Sfr1.25 billion.

Valeant Pharmaceuticals Purchases Dermik

Canada-based Valeant Pharmaceuticals International Inc. agreed to purchase Dermik, a unit of Sanofi, for $425 million.

The transaction all Dermik assets, including available inventories of about $18 million, consisting of an aesthetic and therapeutic business in the United States and Canada, as well as a widely dispersed aesthetic business around the world.

Barry Callebaut Sells European Unit

Barry Callebaut AG, the manufacturer of cocoa and chocolate products inked the sale of its European consumer business Stollwerck to the Belgian Baronie Group. Financial details of the transaction were not disclosed.

The share deal comprises the entire Stollwerck Group and a long-term supply agreement between Baronie Group and Barry Callebaut for the supply of approximately 25,000 tons of liquid chocolate annually as well as the additional supply of cocoa beans and semi-finished products.

Gainers & Losers

Deutsche Bank AG fell 1.81% to €39.13 after the German financial services firm could find a successor to its Chief Executive Josef Ackermann, according to reports.

Lanxess AG dropped 2.10% to €58.37 after the Germany-based chemical company will acquire up to 140,000 own shares for the fulfillment of employees' claims for LANXESS shares under an employees' incentive scheme.

QIAGEN N.V. declined 0.7% to €13.35 after the provider of sample and assay technologies is to purchase 61% of Ipsogen S.A.

Renault S.A. edged lower 2% to €38.40 after the French automaker reported first-half worldwide sales rose 1.9% to 1.4 million units compared to 2010, driven by a 20.4% growth in international business and a 5.7% improvement in Renault brand.

Rio Tinto Plc dipped 0.26% to 4,490 pence after the diversified mining and resources group expressed disappointment with the Australian Government's carbon tax proposal, warning it will “inevitably hinder investment and jobs growth in Australia without reducing global carbon emissions.”

Royal Philips Electronics NV decreased 1.60% to €17.50 after the Dutch consumer electronics and medical devices maker agreed to acquire Povos Electric Appliance (Shanghai) Co., Ltd., a kitchen appliance company in China. Financial details of the transaction were not disclosed.

RWE Deutschland AG dipped 0.03% to €37.01 after the German electric power and natural gas public utility company said it acquired a 15% stake in vitronet Group, a provider of turnkey glass fibre infrastructure solutions.