ECB Cuts Rate to 0.75%, GKN Acquires Volvo Aero

Arthi Gupta
05 Jul, 2012
New York City

The European indexes gained after the European Central Bank cut key rate. Spain sold

[R]3:15 PM Frankfurt – The European indexes gained after the European Central Bank cut key rate. Spain sold €3 billion of medium- and long-term debt. GKN agreed to acquire Volvo Aero for £633 million. Barry Callebaut slumped 3.1%.[/R]

European markets gained after the European Central Bank reduced the main refinancing rate by 25 basis points to 0.75%, as estimated. It was the first rate cut since December.

The central bank also lowered its deposit rate by 25 basis points to zero and the marginal lending facility rate was also cut to 1.50% from 1.75%.

Separately, the Bank of England decided to raise the size of its asset purchase plan by £50 billion to £375 billion but maintained its record low interest rate.

Spain sold €3 billion of debt today.

And separately, Greek Prime Minister Antonis Samaras met troika officials as the nation proposes to relax terms of lending.

In corporate news, Audi’s first-half unit sales in China and Hong Kong increased 37.8% to 193,871 automobiles.

In Paris trading, the CAC-40 Index gained 2.20 or 0.1% to 3,269.95 and in Frankfurt the DAX Index edged higher 36.63 or 0.6% to 6,601.43.

The yields on Spain’s benchmark 10-year bonds increased 10 basis points to 6.45%. Italian 10-year yields rose five basis points to 5.80%.

Spanish Bond Auction

The Spanish Treasury sold €3 billion or $3.75 billion of medium- and long-term debt today.

Spain sold €747 million of the 10-year bond at an average yield of 6.43% compared to an average yield of 6.044% in the last auction on June 7. The bid-to-cover ratio dipped to 3.2 from 3.3 in the prior auction.

The Treasury also sold €1.2 billion of a bond maturing on July 30, 2015 at an average yield of 5.086% compared to an average yield of 5.457% at the previous auction on June 21. The bid-to-cover ratio fell to 2.3 compared to 3.2 last month.

The country also sold €1 billion of a bond maturing on October 31, 2016 at an average yield of 5.536%compared to an average yield of 5.353% on June 7. The bid-to-cover ratio was 2.6, the same as at the previous auction.

GKN Acquires Volvo Aero

GKN plc agreed to acquire Volvo Aero, the aero engine division of AB Volvo to create a world leader in both aero structures and aero engine components.

The enterprise value of the deal is valued at SEK6.9 billion or £633 million comprising SEK5.6 billion or £513 million of equity value together with an anticipated Volvo Aero pension settlement of £50 million and working capital refinancing of £70 million.

Gainers & Losers

Barry Callebaut AG slumped 3.1% to Sfr830 after the cocoa and chocolate products manufacturer said its sales revenue for the first nine months of the current fiscal year increased 8.4% in local currencies to Sfr3.59 billion.

Fielmann AG dipped 0.7% to €74.85 after the eyewear retailer reported first-half pre-tax profit rose 3% to €89 million compared to €86.4 million last year. External sales improved annually to €647 million from €615.4 million.

Merck KGaA dropped 0.2% to € 79.69 after the chemical and pharmaceutical company reported its cancer drug Erbitux failed to meet primary goal of progression-free survival in a late-stage trial in patients with advanced gastric cancer.

Porsche Automobil Holding SE soared 2.6% to €43 after the car manufacturer and Volkswagen AG agreed on a plan for the accelerated creation of the integrated automotive group between the two companies.

Following consummation of the transaction, Volkswagen Aktiengesellschaft will become the sole owner of the Porsche business operations. Volkswagen already holds 49.9% of Porsche AG indirectly.

Porsche SE will receive cash consideration of around €4.46 billion plus one Volkswagen ordinary share.

Publicis Groupe SA edged higher 0.2% to €37.47 after the communication group said it acquired 51% of the shares of the Bartle Bogle Hegarty network in which Publicis Groupe has already held a 49% stake for many years.

Renault SA climbed 0.2% to €33.88 after the automobiles manufacturer said Renault-Nissan Alliance will provide 15,000 vehicles in an exclusive fleet contract with Danone, the nutritional food company.