Europe Takeovers Show Appeal of Stocks, Goldman Says

By Adam Haigh and Alexis Xydias

Aug. 22 (Bloomberg) -- A surge in European takeovers this month draws a ``line in the sand'' for asset valuations and represents a turning point for the market, Goldman Sachs Group Inc. said.

London-based analysts at the U.S. brokerage forecast mergers and acquisitions will support stocks as it shows executives are drawn to historically cheap share prices and proves that banks are willing to lend. Goldman highlighted more than 80 companies, including Repsol YPF SA and Hays Plc, whose businesses and finances make them takeover candidates.

``Either the market is pricing in a 1970s period of low growth and high inflation, or it has become relatively more attractive,'' Goldman Managing Director Anthony Ling and a team of analysts wrote in a report to clients dated yesterday. ``The recent outbreak of activity -- 33 deals in Europe this month -- marks a significant turning point for the market.''

Europe's Dow Jones Stoxx 600 Index trades at 11.71 times its members' current earnings, according to weekly Bloomberg data. That's near the lowest valuation since at least 2002. The measure added 0.72, or 0.3 percent, to 279.16 as of 8:42 a.m. in London.

Aon Corp. said today it agreed to buy Benfield Group Ltd., a London-based reinsurance broker, for 844 million pounds ($1.6 billion), including new shares. Lonmin Plc, a platinum producer also based in the British capital, received an unsolicited $10 billion takeover bid by Xstrata Plc earlier this month.

``With further earnings downgrades and negative revisions to key macro indicators, the market is likely to remain volatile,'' the analysts wrote. ``However, we expect continued mergers and acquisitions activity to provide support and upside potential to a number of stocks.''

To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Alexis Xydias in London at axydias@bloomberg.net.