AstraZeneca and Deutsche Bank drag down European shares

Fresh uncertainty over the prospects for the Chinese economy and renewed worries about current equity valuations made for a cautious day in the markets.

The mood was also undermined by a readjustment to investors' expectations for a burst of merger and acquisition activity, after AstraZeneca rejected the latest merger offer from Pfizer.

Indeed, AstraZeneca shares tumbled more than 11 per cent, helping to pull both the FTSE 100 in London and the pan-European FTSE Eurofirst 300 equity indices down 0.2 per cent.

LONDON
AstraZeneca's shares dropped 11.1 per cent to take the most points off the FTSEurofirst 300, after the British company rejected a sweetened "final" cash-and-stock offer from Pfizer, casting doubt on the US drugmaker's plan to create the world's biggest pharmaceuticals group.

The FTSE 100 ended 0.2 per cent lower at 6,844.55, a 11.26 point fall. AstraZeneca cost the index nearly 27 points. Shares in Pfizer rose 1 per cent to $29.50 in New York.

Imperial Tobacco crept to a record high after Goldman Sachs reheated long-standing bid speculation. Having been on an investor roadshow with Imperial, Goldman said it was "more convinced that there is genuine change happening".

Shire, a perennial subject of bid rumours, climbed 2.6 per cent to £33.53. Both Citigroup and Deutsche repeated "buy" advice on Shire based on the progress of its lifitegrast dry-eye treatment, which is due to be filed with US regulators in the first quarter of 2015.

Airlines reversed recent weakness after Ryanair said average fares for 2015 would improve. EasyJet added 4.7 per cent to £15.87, IAG took on 3.5 per cent to 370.8p and Ryanair was up 10.2 per cent to €7.

In belated reaction to Friday's election of the pro-business Bharatiya Janata Party in India, Cairn Energy climbed 3.8 per cent to 188p and Vedanta Resources was up 3.8 per cent to £10.15.

Fashion label Supergroup dropped 5.9 per cent to 964p after Oriel Securities turned cautious following two consecutive quarters of weaker-than-expected sales which hint at problems with pricing and advertising strategies as well as a stale range, said the broker.

EUROPE
European equities were pulled down by AstraZeneca snubbing of Pfizer and by Deutsche Bank's announcement of a capital increase.

The pan-European FTSEurofirst 300 index, which last week hit a six-year high of 1,372.81 points, closed down 0.2 per cent at 1,358.91 points. The euro zone’s blue-chip Euro STOXX 50 index also fell 0.1 per cent to 3,169.90 points.

Deutsche Bank’s shares fell 1.7 per cent after it announced an €8 billion capital increase.

The fall pushed the STOXX Europe 600 Bank Index down by 0.8 per cent, with some analysts expecting that other banks may also have to raise capital to strengthen their balance sheets. In spite of the pullback, some investors were still upbeat on the prospects for European equities, with both the FTSEurofirst 300 index and the STOXX Europe 600 Bank Index up nearly 20 per cent since the start of 2013.

NEW YORK
US stocks also gained ground, with the S&P 500 up 0.4 per cent at 1,884 by mid-afternoon in New York. The US equity benchmark hit a record intraday high of 1,902 less than a week ago, before running into a wave of risk aversion that drove it down 1.4 per cent over the following two sessions.

Shares of US drugstores were lifted on reports that one of the largest chains would use a takeover to re-domicile itself abroad to cut its tax costs. The move, reportedly being considered by Walgreens, the owner of Duane Reade and its own eponymous drugstore chain, would dramatically reduce the company's taxes and allow the company to increase earnings per share by as much as 75 per cent, some Wall Street analysts say. Overall, US equity markets coasted at the start of the week without any major economic reports to sway investors. – (Copyright The Financial Times Limited 2014 / Reuters)